What is the Finance Commission?

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What is the Finance Commission? Blog Image


The Central government will soon start off the process to set up the Sixteenth Finance Commission, with the Finance Ministry likely to notify the terms of references for the Finance Commission.

About Finance Commission:

  • What is it? It is constitutional body for giving recommendations on distribution of 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 the deemed necessary by the President.
  • Parliament may by law determine the requisite qualifications for appointment as members of the Commission and the procedure of 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.
  • Recommendations of the Finance Commission are not binding on the government.


Q1) What does article 280 of the constitution say?

Article 280 of the Indian Constitution lays down the provisions for the creation of a Finance Commission and the powers and duties allotted to it.

Source: Process to set up Sixteenth Finance Commission set to kick off soon