Flagging the issue during Zero Hour, Ramesh said that instead of 42 per cent, states would get 30 per cent share in the gross pool of tax revenue in FY20.
"The government owes an explanation why a commitment was made that 42 per cent of the devolved tax revenue would go to states has become only 30 per cent. It has never been 42 per cent. I think this is a breach of promise," the senior Rajya Sabha member said.
He claimed that states such as Kerala and Karnataka where per capita income is growing fast, faster than the national average, are at a serious disadvantage because they have found their share falling.
"States that are performing well should not be penalised by the Finance Commission," he said.
The former Minister also expressed reservations over re-wording of the Terms of Reference (ToR) of the Finance Commission to suggest how expenditure for internal security and defence should be earmarked.
"This would ultimately result in lowering the amount of money that would be transferred from the Centre to states," Ramesh said.
The senior Congress leader noted that many states in the South had performed well on various parameters such as population and growth as against states in the other region and hence it should be ensured that they are not penalised by the government.
Another Congress stalwart Digvijaya Singh raised the issue of reduction in share of funds to Madhya Pradesh noting that in the FY20 the state would get almost Rs 14,000 crore lower than promised.
"Instead of cutting states' share the Centre should cut its own expenditure," Singh said.
( With inputs from IANS )