What is the Finance Commission?

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What is the Finance Commission? Blog Image


The government has started the process of constitution of the Sixteenth Finance Commission.

About Finance Commission

  • It is a constitutional body for giving recommendations on the distribution of tax revenues , tax revenues , between the Union and the States and amongst the States themselves.
  • Who constitutes? The Finance Commission is constituted by the President under Article 280 of the Constitution.
  • It is constituted at the end of every fifth year or earlier, as deemed necessary by the President.
  • Parliament may, by law, determine the requisite qualifications for appointment as members of the Commission and the procedure for their selection. On account of this, The Finance Commission (Miscellaneous Provisions) Act, 1951, was passed.
  • Mandate: It is the duty of the Commission to make recommendations to the President as to:
    • the distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them and the allocation between the States of the respective shares of such proceeds; 
    • the principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India;
    • the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats and Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State;
    • any other matter referred to the Commission by the President in the interests of sound finance.
  • Composition: It consists of a Chairman and four other members appointed by the President.
  • Qualifications of members: The Chairman of the Commission is selected from among persons who have had experience in public affairs, and the four other members are selected from among persons who
    • are, or have been, or are qualified to be appointed as judges of a High Court; or
    • have special knowledge of the finances and accounts of Government; or
    • have had wide experience in financial matters and in administration; or
    • have special knowledge of economics
  • Tenure of members: Every member will be in office for the time period as specified in the order of the President and is eligible for reappointment.
  • The recommendations of the Finance Commission are not binding on the government.

Q1) What is the Consolidated Fund of India?

This fund was constituted under Article 266 (1) of the Constitution of India. All revenues received by the government by way of direct taxes and indirect taxes, money borrowed and receipts from loans given by the government flow into the Consolidated Fund of India.

Source: Govt begins process of constituting Sixteenth Finance Commission