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Finance Commission of India, Functions, Article, Qualifications

Finance Commission

Finance Commission: Constitution of India is one of the lengthiest written constitutions. One of the sections of the Constitution that talks about the Constitutional Bodies and Finance Commission of India is one of the constitutional bodies in the Indian Constitution. The Finance Commission is constituted by the Indian President after every five years. At present 15th Finance Commission has been constituted for the period of 2021 – 2026 under the chairmanship of NK Singh.

Finance Commission of India

The Finance Commission of India has been mentioned under Part XII, Chapter I (Finance) in Articles 280 and 281 of the Indian Constitution. Finance Commission is a quasi-judicial body which recommends the Indian President in matters related to financial distribution between union and state government by demarcating the set of formulas and mechanisms as needed to the situation in the country and Constitution.

Important Facts on Finance Commission of India

Part of Constitution XII of Constitution
Finance Commission Article Article 280 – Finance Commission (FC)

Article 281 – Recommendation of the FC

Finance Commission Constituted by President of India after every 5 years
Total Member of Finance Commission Chairman + 4 members appointed by President
Tenure of Finance Commission 5 years
1st Finance Commission Constituted on 6th April 1952 under KC Neogy
15th Finance Commission (2021-22 to 2025 -2026) Under NK Singh and recommended the share of states in the central taxes for the 2021-26 period is recommended to be 41%, (14th FC recommendation was 42%)
Finance Commission (Miscellaneous Provision) Act 1951 The Act determines the qualifications requisite for appointment as members of the Finance Commission and the manner in which they shall be selected, and to prescribe their powers.

Composition of Finance Commission of India

In India the Finance Commission is composed of a total of five members of which one is the Chairman of the Finance Commission and the other four members of the Finance Commission who are appointed by the President of India. It is to be noted that they are also eligible for being reappointed to the Finance Commission by the President.

Qualification of Finance Commission Members

The Parliament has been empowered by the Indian Constitution in order to determine the qualification and manner required through which the member of the Finance Commission is selected. The Chairman should be a person with a good experience in the field of public affairs and the other four members needs to be from the following:

  • High Court Judge or qualified to be the HC Judge
  • Need to have specialized Knowledge of Accounts and Finance of the Indian Government.
  • Vastly experienced in the field of administration and finance
  • Specialised knowledge in the field of economics

Finance Commission Functions

The prominent function of the Finance Commission is to recommend the Indian President in the matters such as:

  • Shares of tax distribution between center and state government
  • Determine the principle based on which the centre will give states the grants-in-aid of the Consolidated Fund of India.
  • Other matters as prescribed by the Indian President.
  • Based on the Finance Commission’s recommendations, steps must be taken to increase the state’s consolidated funds in order to support the resources of the panchayat and the municipality.

Note: The last function regarding financial assistance to the Panchayat and Municipality was added after the 73rd and 74th CAA 1992 which granted constitutional status to Panchayat and Municipality.

Finance Commission Report

The report made by the Finance Commission is being submitted to the President of India which he keeps before either house of the Parliament for taking necessary action on the recommendation. Although it needs to be understood that Finance Commission reports are advisory in nature only hence it is not binding on the government.

15th Finance Commission

The 15th Finance Commission has been appointed for the period of 2021 – 2016 by the President of India and submitted its report on 1st February 2021. Recommendations made by the 15th Finance Commission have been mentioned below:

  • It is recommended that 41% of the net proceeds go to the Centre and the States.
  • Created with the goal of enhancing cooperative federalism, enhancing the standard of public spending, and assisting in preserving budgetary stability.
  • It was necessary to examine how the 14th Commission’s recommendation would affect the Center’s financial standing.
  • The effect of GST on the economy needed to be studied.
  • It is necessary to suggest performance-based rewards for the states based on their initiatives to manage the population, advance business-friendliness, and restrain spending on populist measures, among other things.

List of Finance Commission Chairman

In India since 1951 till date, a total of fifteen Finance Commission has been constituted. The List of Finance Commissions Chairman has been mentioned in the table below:  

Finance Commission Chairman List

Finance Commissions Finance Commissions Chairman Establishment Year
1st Finance Commission K.C. Neogy 1951
2nd Finance Commission K. Santhanam 1956
3rd Finance Commission A.K. Chanda 1960
4th Finance Commission Dr. P.V. Rajamannar 1964
5th Finance Commission Mahavir Tyagi 1968
6th Finance Commission Brahamananda Reddy 1972
7th Finance Commission J.M. Shelat 1977
8th Finance Commission Y.B. Chavan 1982
9th Finance Commission N.K.P. Salve 1987
10th Finance Commission K.C. Pant 1992
11th Finance Commission A.M. Khusro 1998
12th Finance Commission Dr. C. Rangarajan 2002
13th Finance Commission Dr. Vijay Kelkar 2007
14th Finance Commission Y.V. Reddy 2013
15th Finance Commission N.K Singh 2017

Finance Commission UPSC

Indian Constitution in India provides Finance Commission as a balancing wheel of fiscal federalism. The Finance Commission since 2014 was undermined in central-state relations due to the presence of the Planning Commission. A step in the right direction towards decentralising finance is abolishing the Planning Commission and increasing support for the 15th Finance Commission’s plan to transfer 41% of taxes to the States.

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Finance Commission FAQs

What is 15th Finance Commission for UPSC?

The 15th Finance Commission observed that the recommended path for fiscal deficit for the center and states

What is the 16th Finance Commission?

The union government may set up the 16th finance commission this FY 2023-24 to suggest the ratio in which tax is to be divided between the Centre and states

Who is 14th Finance Commission for UPSC?

Its prominent members included M. Govinda Rao, Sushma Nath, Sudipto Mundle, Abhijit Sen, and AN Jha.

Who are the 4 men of 15th Finance Commission?

Nand Kishore Singh was appointed as the commission's chairman, with its full-time members being Shaktikanta Das and Anoop Singh and its part-time members being Ramesh Chand and Ashok Lahiri.

Who headed 12th Finance Commission?

Twelfth Finance Commission has been constituted with Dr. C. Rangarajan, as Chairman, with three other members.

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