States can never tax water or electricity from inter-state river authorities.

They can, but only through a new law that has received the President's assent, as clause (2) allows.

Old pre-Constitution state tax laws automatically apply to these authorities.

Clause (1) blocks such old laws from applying unless the President specifically permits an exception.

The Constitution of India

Article 288

Exemption from taxation by States in respect of water or electricity in certain cases

(1) Save in so far as the President may by order otherwise provide, no law of a State in force immediately before the commencement of this Constitution shall impose, or authorise the imposition of, a tax in respect of any water or electricity stored, generated, consumed, distributed or sold by any authority established by any existing law or any law made by Parliament for regulating or developing any inter-State river or river-valley.§

Explanation. — The expression “law of a State in force” in this clause shall include a law of a State passed or made before the commencement of this Constitution and not previously repealed, notwithstanding that it or parts of it may not be then in operation either at all or in particular areas.§

(2) The Legislature of a State may by law impose, or authorise the imposition of, any such tax as is mentioned in clause (1), but no such law shall have any effect unless it has, after having been reserved for the consideration of the President, received his assent; and if any such law provides for the fixation of the rates and other incidents of such tax by means of rules or orders to be made under the law by any authority, the law shall provide for the previous consent of the President being obtained to the making of any such rule or order.§

Why this exists

After Independence, India began building large multi-state river projects — like the Bhakra-Nangal Dam and the Damodar Valley Corporation — to manage water and generate electricity across state borders. If every state through which such a river flowed could tax the water or power however it liked, it would create chaotic, unfair, and conflicting tax burdens on a shared national resource. Article 288 was designed to keep such projects under central coordination by requiring presidential approval before any state tax touches them, ensuring cooperative rather than competitive management of shared rivers.

Common misconceptions

Myth: States can never tax water or electricity from inter-state river authorities.
Fact: They can, but only through a new law that has received the President's assent, as clause (2) allows.
Myth: Old pre-Constitution state tax laws automatically apply to these authorities.
Fact: Clause (1) blocks such old laws from applying unless the President specifically permits an exception.