Headquarters of India, the Reserve Bank of India, in Mumbai. India's non-development revenue expenditure has increased by nearly five times in 2003-04 and 1990-91, more than ten times since 1985-1986. Interest payments are the largest item of expenditure and accounted for over 40% of total non-development expenditure in the budget 2003-04. Defence expenditure quadrupled during the same period and has increased due to heightened tensions in the region, costly dispute with Pakistan over Jammu and Kashmir and an effort to modernize the army. Administrative costs are compounded by a large wage and pension bill, which periodically rises as a result of the review of salaries, etc. dearness allowance subsidies on food, fertilizer’s education and oil and " Other merit and non-merit subsidies are not only the continuing rise, particularly Due to the increase of crude oil and food prices, but they are also more difficult to control, because of political constraints.

Public receipts

India has a three-tier tax structure, which the Constitution empowers the union government to levy income tax, the tax on capital transactions (wealth tax, the tax on inheritance), sales tax, service tax, customs and excise duties and the state governments to levy sales tax on intra-state sale of goods, entertainment tax and professions, the excise duty on the manufacture of alcohol, stamp duty on transfer of land ownership and collect revenues (tax on land owned). Local authorities are empowered by the state government to levy taxes, granting users and pay for public services such as water supply, sewage etc. More than half of the Union's revenue and the governments of States come from the tax, half of which come from Indirect Taxes. More than a quarter of the union of the government's tax revenue is shared with the state governments.

Tax reform, which began in 1991, have sought to rationalize the tax structure and increase compliance by taking measures in the following directions:

To reduce the rate of corporate and personal income tax, excise duties, customs and make it more progressive.

• The reduction of exemptions and concessions.

• Simplification of laws and procedures.

Introduction of permanent account number to monitor monetary transactions 21 of the 29 states introduced Value Added Tax (VAT) on April 1, 2005 to replace the complex and multiple sales tax system. The non-tax revenue of the central government services come from the exercise, interest receipts, dividends from the public sector, etc., while non-tax revenues of states are grants from the central government, interest receipts, Dividend and Income for general purposes, economic and social services.

Inter-States to share the federal tax pool is decided by the recommendations of the Finance Commission to the President.