The Constitution of India
Article 285
Exemption of property of the Union from State taxation
(1) The property of the Union shall, save in so far as Parliament may by law otherwise provide, be exempt from all taxes imposed by a State or by any authority within a State.
(2) Nothing in clause (1) shall, until Parliament by law otherwise provides, prevent any authority within a State from levying any tax on any property of the Union to which such property was immediately before the commencement of this Constitution liable or treated as liable, so long as that tax continues to be levied in that State.
Why this exists
Article 285 reflects a basic federal principle: one government's property should not be squeezed for revenue by another level of government, since the Union serves the whole country and shouldn't be financially burdened by individual States or municipalities. At the same time, the framers didn't want to suddenly wipe out pre-existing local taxes on Union property that towns and States had relied on before 1950, so clause (2) grandfathered those arrangements until Parliament decided to change them.
How courts read it
The Supreme Court examined this Article closely in New Delhi Municipal Committee v. State of Punjab (1997), a major case about whether municipal bodies could levy property tax on buildings owned by the Union government in Delhi. The Court held that 'any authority within a State' includes municipal corporations and committees, not just the State government itself, so such bodies also need Parliament's permission to tax Union property. The Court also examined the scope of the pre-constitutional exemption under clause (2), clarifying that only taxes actually being levied or treated as leviable just before the Constitution's commencement could continue.
Common misconceptions
- Myth: Union property can never be taxed by any State or local body under any circumstances.
Fact: Parliament can pass a law allowing such taxation, and old pre-1950 taxes can continue under clause (2) until Parliament changes that. - Myth: Only State governments are barred from taxing Union property; municipalities and local bodies are free to do so.
Fact: The Supreme Court in New Delhi Municipal Committee v. State of Punjab (1997) clarified that 'any authority within a State' includes municipal bodies, so they too need Parliament's authorization.