For discussing the financial relation between the Union and the States these following points should be noted:
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Relation between the Centre and States in India
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Art-268 says about duties to be levied by the Union but collected and appropriated by the states. It includes duties on medicinal and toilet preparations, excise on tobacco, corporation tax, customs and import duties, estate duty, terminal taxes on goods and passengers’ tax on goods for inter-state trade etc.
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Art-269 says about taxes to be levied and collected by the Union but assigned to the states. It includes duties in respect of succession to property other than agricultural land, estate duty in respect of property other than agricultural land, terminal taxes on goods and passengers carried by rail, sea or air taxes on railway fares and freights, taxes on the sale and purchase of newspapers and advertisements given therein etc.
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Art-270 says about taxes to be levied and collected by the Union and distributed between the Union and the states. It includes tax on income other than agricultural.
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Art 272 says about the taxes to be levied and collected by the Union and which may be distributed between the Union and the States. It includes many items given in the Union List as railways and post telegraph telephones, wireless, foreign exchange, foreign loans, customs and export duties etc.
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Art 275 says about the grant-in-aid given by the Union to the states for implementing its planning programmes as well as for the development of the Scheduled Castes, Scheduled Tribes and other weaker sections of the community. It is provided that the President shall determine special grants to some states like Assam, Bihar, Orissa and West Bengal in lieu of export duty on jute and jute products.
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Above all, Act 280 says about the setting up of a Finance Commission by the President of India after a gap of every five years or whenever he so deems necessary, having a Chairman and four other members which shall make recommendation as to the distribution between the Union and the States of the net proceeds of taxes which are to be or may be divided between them and the allocation between the states of the respective shares of such proceeds and the principles which should govern the grants in-aid of the revenue of the states out of the Consolidated Fund of India.