The Constitution of India
Article 287
Exemption from taxes on electricity
Save in so far as Parliament may by law otherwise provide, no law of a State shall impose, or authorise the imposition of, a tax on the consumption or sale of electricity (whether produced by a Government or other persons) which is —
(a) consumed by the Government of India, or sold to the Government of India for consumption by that Government; or
(b) consumed in the construction, maintenance or operation of any railway by the Government of India or a railway company operating that railway, or sold to that Government or any such railway company for consumption in the construction, maintenance or operation of any railway,
and any such law imposing, or authorising the imposition of, a tax on the sale of electricity shall secure that the price of electricity sold to the Government of India for consumption by that Government, or to any such railway company as aforesaid for consumption in the construction, maintenance or operation of any railway, shall be less by the amount of the tax than the price charged to other consumers of a substantial quantity of electricity.
Why this exists
This provision reflects the federal structure of India, protecting the Union Government and railway operations from being financially burdened by State-level taxation. Railways, being a Union subject and a nationwide network, needed uniform, tax-free electricity costs for consistent maintenance and operation across states. It also allows Parliament flexibility to permit such taxes if national policy requires, balancing State revenue powers against Union operational needs.
How courts read it
Courts have generally read Article 287 narrowly, confirming it only exempts electricity consumed directly by the Union Government or in railway operations, not electricity used by private contractors or entities merely connected to government work. Judicial decisions have emphasized that the exemption must be interpreted strictly, in line with the specific words used, rather than being expanded to other government-linked activities or sales.
Common misconceptions
- Myth: Article 287 means all electricity used by any government office anywhere is tax-free.
Fact: It only exempts electricity consumed or sold specifically to the Government of India, or used for railway construction, maintenance, or operation — not State government offices or private companies working with the government. - Myth: States can never tax electricity because of this Article.
Fact: States can tax electricity generally; they just cannot tax the specific categories protected here, and Parliament can also override even this limited exemption by law.