The Finance Commission of India is a constitutional body constituted under Article 280 of the Constitution of India. Its primary role is to make recommendations on fiscal matters between the central government and the states. The Finance Commission is tasked with determining the distribution of tax revenues between the central government and the states and also recommends the principles and formula for the devolution of funds to the states.
The functions of the Finance Commission include:
Distribution of Tax Revenues: The Finance Commission determines the sharing of the “net proceeds” of certain taxes between the central government and the states. This distribution is based on the relative contributions of each state to the taxes.
Grants-in-Aid: The Commission also decides the factors governing Grants-in-Aid to the states and determines the amount of such grants. Grants-in-Aid are financial assistance the central government provides to the states for various purposes.
Measures for Fiscal Stability: The Finance Commission recommends to the President of India the measures required to augment the Fund of a State to support the resources of panchayats (local self-government at the village level) and municipalities in that state.
Other Matters: The President may also refer any other matter related to fiscal issues to the Finance Commission for its recommendations in the interest of sound finance.
The recommendations made by the Finance Commission are advisory and not binding on the government. The Commission submits its report to the President, and the President lays it before both Houses of Parliament along with an explanatory memorandum on the action taken by the government on those recommendations.
The Finance Commission is crucial for maintaining fiscal federalism in India and ensuring a fair and equitable distribution of resources between the central government and the states. The recommendations of the Commission play a significant role in determining the fiscal relations and financial stability of the country’s federal structure.
Calling all law aspirants!
Are you exhausted from constantly searching for study materials and question banks? Worry not!
With over 15,000 students already engaged, you definitely don't want to be left out.
Become a member of the most vibrant law aspirants community out there!
It’s FREE! Hurry!
Join our WhatsApp Groups (Click Here) and Telegram Channel (Click Here) today, and receive instant notifications.
