Three decades have elapsed since the implementation of the 73rd and 74th Constitutional Amendments Acts, envisioning the functioning of local bodies in India as entities for local self-government. As a subsequent measure, the Ministry of Panchayati Raj was established in 2004 with the aim of enhancing the capabilities of rural local governments.

When evaluating the extent of devolution, it is apparent that certain states have made significant progress, while many others have lagged behind. The dedication of state governments to decentralization has played a crucial role in establishing panchayati raj institutions as effective mechanisms for local governance at the grassroots level.

The constitutional amendment has outlined specific details regarding fiscal devolution, encompassing the generation of independent revenues. Stemming from the Central Act, various State Panchayati Raj Acts have incorporated provisions for taxation and collection. In accordance with the stipulations of these Acts, panchayats have endeavored to maximize the generation of their own resources. The Ministry's interventions have culminated in participatory planning and budgeting as the ultimate outcomes of these efforts

• The expert committee report commissioned by the Ministry of Panchayati Raj on the autonomous generation of revenue by rural local bodies provides a detailed account of State Acts that have integrated both tax and non-tax revenue mechanisms applicable for collection and utilization by panchayats.
• Key sources of revenue, such as property tax, land revenue cess, additional stamp duty surcharge, tolls, professional tax, advertisement tax, and user charges for services like water, sanitation, and lighting, represent significant avenues where panchayats can generate substantial income.
• Panchayats are tasked with creating a favorable environment for taxation by implementing suitable financial regulations. This encompasses decision-making on tax and non-tax bases, determining rates, establishing provisions for periodic revisions, defining exemption areas, and enacting robust tax management and enforcement laws to facilitate collection.
• The substantial potential for non-tax revenue comprises fees, rent, income from sales and hire charges of investments, and receipts.
• Additionally, there are innovative projects capable of generating own-source revenue, including income from rural business hubs, inventive commercial initiatives, renewable energy projects, carbon credits, Corporate Social Responsibility (CSR) funds, and donations

• Gram sabhas play a crucial role in promoting self-sufficiency and sustainable development at the grassroots level by utilizing local resources for revenue generation.
• They are involved in planning, decision-making, and executing revenue-generating initiatives spanning agriculture, tourism, and small-scale industries.
• Empowered with the authority to impose taxes, fees, and levies, gram sabhas allocate funds towards local development projects, public services, and social welfare programs.
• Transparent financial management and inclusive participation ensure accountability, building community trust and empowering villages to achieve economic independence and resilience.
• Consequently, gram sabhas should actively encourage entrepreneurship and cultivate partnerships with external stakeholders to enhance the efficacy of revenue generation efforts.
• In various states, gram panchayats may lack the authority to collect taxes, and in many instances, intermediate and district panchayats are not entrusted with the responsibility of tax collection.
• The distribution of own source revenue (OSR) among the three-tier panchayats needs delineation to ensure equitable sharing. There exists a reluctance to generate own income, partly attributed to an increased allocation of Central Finance Commission (CFC) grants, diminishing the interest of panchayats in OSR collection.
• While the allocation for rural local bodies saw substantial increases in the 14th and 15th CFCs, reaching ₹2,00,202 crore and ₹2,80,733 crore, respectively, the tax collected reduced from ₹3,12,075 lakh in 2018-19 to ₹2,71,386 lakh in 2021-2022.
• Simultaneously, non-tax revenue collected decreased from ₹2,33,863 lakh to ₹2,09,864 lakh. The past competition among panchayats to raise OSR for basic needs has shifted towards dependency on grants from central and state finance commissions. Some states provide matching grants as an incentive, although this approach has been sparingly implemented.
• Panchayats also refrain from penalizing defaulters, viewing OSR as not being linked to panchayat finance