India’s Federal System has suffered from many difficulties and there is an adverse trend from 1980s. State governments have been facing various budgetary hardship which affecting their developmental expenditure. Among the hardships, inadequate revenue sources, low central transfers are prominent. The Indian constitution sets three fold classifications for expenditure responsibility between state and centre. Constitution accordingly also sets forth the respective taxation powers of centre and state governments. It is generally perceived that the state taxation powers are inadequate in relation to their expenditure responsibilities and that imbalances have been worsening over time. In addition to centre state tax collection and sharing, the constitution has some other provision of resource transfers to the states through various mechanisms determined by the finance commissions. The finance commission plays a vital role in centre state tax sharing and resource transfers. The planning commission and both five year and one year plans which are not mandated in the constitution, have become very important part of centre-state financial relation. With this backdrop the present paper attempts to bring the federal issues related to the recent Indian federal Scenario.