The 14th Finance Commission has recommended an increase in states’ share in central taxes to 42%, which is largest ever change in percentage of devolution. Which among the following is / are included in the divisible pool of central taxes?
1. Direct taxes
2. Indirect Taxes
3. Cess
4. Surcharges
Select the correct option from the codes given below:

Answer: [C] Only 1 & 2

Kindly note that the cess and surcharges are not part of the divisible pool of central taxes.

The share of cess and surcharges in gross tax revenue of the Union government increased from  7.53% in 2000-01 to 13.14% in 2013-14.

From Finance Commission Report:

Almost all States have argued that cess and surcharges should form part of the divisible pool, with some suggesting that this should be done if cess and surcharges continue for more than three years. A few States have proposed a minimum guaranteed tax devolution to insulate States’ finances from the volatility of Union revenues for the purpose of predictability of transfer and stability in the management of State finances

This question is a part of GKToday's Integrated IAS General Studies Module