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Source of Funds for Panchayats

  • Context (IE): The RBI has recently published a report titled “Finances of Panchayati Raj Institutions” covering the years 2020-21 to 2022-23.

Sources of Funds for Panchayats

  • Own source of funds (1. Tax revenue & 2. Non-Tax revenue)
Tax revenue Non-Tax revenue
  1. House building tax/Property tax
  2. Profession tax
  3. Vehicle tax
  4. Tax on fairs and other entertainments
  5. Tax on advertisement
  6. Levy on factories in lieu of taxes
  1. Water fee
  2. Sanitary fee for public latrines
  3. Fee for the use of panchayat shelter
  4. User charges for hospitals and schools
  5. Fee on markets and weekly bazaars
  6. Birth and death registration fee

A diagram of a rural government Description automatically generated

  • Transfers from Union and State Governments
    • The 73rd amendment of the constitution provides a provision that the state governments must constitute State Finance Commissions (SFCs) every five years.
    • The SFC will make recommendations about the sharing of resources between the state and the local bodies (both rural and urban).
    • Grants received to carry out activities as part of national schemes. For example, under the 15th Finance Commission’s period, panchayats are to receive funds to implement a Centrally Sponsored Scheme known as ‘Jal Jeevan Mission’.

Key Finding of the report

  • Panchayats’ Own Sources of Revenue i.e. tax revenue is very limited. The own revenues of the Panchayats were only 1.1 per cent of their total revenue during the study period.
  • Non-tax revenue, primarily from Panchayati Raj programmes and interest earnings, constituted 3.3 per cent of the total revenue receipts.
  • The average revenue per Panchayat (encompassing taxes, non-taxes, and grants) was at approx. 21 lakhs for the three consecutive periods of 2021,2022,2023.
  • Average Expenditure witnessed a decline from 17.3 lakh in 2020-21 to 12.5 lakh in 2022-23, attributed to elevated spending during the pandemic year.
  • There are sharp inter-state variations in the devolution of powers and functions to Panchayats.
  • States having higher devolution levels exhibit better outcomes in health, education, infrastructure development, water supply and sanitation.
  • Issue: Around 95 per cent of their revenue come in the form of grants from higher levels of government.
    • This restricts their spending ability that is already hampered by delays in the constitution of State Finance Commissions.
  • Over 2.5 lakh Panchayati Raj Institutions (PRIs) utilised the eGramSwaraj platform for accounting purposes.
  • Additionally, more than 2.4 lakh PRIs have seamlessly integrated the eGramSwaraj-PFMS Interface for online transactions, facilitating online payments.


  • It was introduced in 2020, serves as a simplified, work-based accounting application for PRIs.
  • It addresses diverse aspects of Panchayat operations, including planning, accounting, budgeting, and online payments.
  • The platform facilitates efficient financial management and provides a platform for higher authorities to monitor Panchayat activities effectively.
  • The introduction of the Audit Online application by the Ministry of Panchayati Raj (MoPR) further strengthens financial management and transparency.

Powers & Functions of the Panchayat (11th Schedule of the constitution)

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