The Finance Commission is a constitutional body that decides the sharing of taxes between the Centre and the States. It is set up by the President every five years. The Finance Commission is provided for under Article 280 of the Constitution.
Constitution of the Commission
The Finance Commission is appointed by the President every fifth year or earlier if needed. It consists of a Chairman and four other members. The first Finance Commission was set up in 1951 under the chairmanship of K.C. Neogy.
Functions of the Finance Commission
- Recommends the distribution of taxes between the Centre and the States.
- Decides the principles of grants-in-aid to the States from the Consolidated Fund.
- Recommends measures to improve the finances of panchayats and municipalities.
- Advises the President on any financial matter referred to it.
Importance
The Finance Commission is the backbone of fiscal federalism in India. It ensures a fair division of resources so that states can meet their needs. Its recommendations are advisory but are usually accepted by the government.
Recent Commissions
The 15th Finance Commission was chaired by N.K. Singh. It used the 2011 Census data for its calculations. Each commission decides the tax-sharing formula for a five-year period.
Quick Revision Points
- Finance Commission is provided under Article 280.
- Appointed by the President every 5 years.
- Has a Chairman and four members.
- First Commission (1951) was headed by K.C. Neogy.
- Recommends tax sharing and grants-in-aid.
- Backbone of fiscal federalism in India.
- The 15th Finance Commission was chaired by N.K. Singh.