The Union Cabinet has approved the Terms of Reference for the Sixteenth Finance Commission.
Terms of reference
- The 16th Finance Commission’s recommendations, upon the acceptance by the government, would cover the period of five (5) years commencing April 1, 2026.
- Apart from the key recommendation on distribution of net proceeds of taxes between the Centre and States and allocation among States of the respective share of such proceeds, the panel will also prescribe measures needed to augment the Consolidated Fund of a State to supplement resources of the panchayats and local bodies on the basis of recommendations made by the respective State Finance Commissions.
- Under the ToR, the panel will recommend principles that should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India and the sums to be paid to the States by way of grants-in-aid of their revenues.
- Also, it may review the existing arrangements on financing Disaster Management initiatives and make appropriate recommendations.
Article 280(1) of the Constitution
Article 280(1) of the Constitutions lays down that the modalities for setting up of a Finance Commission to make recommendation on:
- the distribution of net proceeds of taxes between the Union and the States,
- allocation between the States of respective shares of such proceeds;
- grants- in-aid and the revenues of the States and
- measures needed to supplement the resources of the Panchayats during the award period.
Fifteenth Finance Commission
- The Fifteenth Finance Commission was constituted on November 27, 2017. It made recommendations covering the period of six years commencing on 1st April, 2020 through its Interim and Final Reports.
- The recommendations of the Fifteenth Finance Commission are valid upto the financial year 2025-26.
- As per the clause (1) of article 280 of the Constitution, the Finance Commission is to be constituted every fifth year or earlier.
- However, as the recommendations of the 15th FC cover the six-year period up to 31st March 2026, the 16th FC is proposed to be constituted now.
- This will enable the Finance Commission to consider and appraise the finances of the Union and the States for the period immediately, preceding the period of its recommendations.
- There are precedents where the Eleventh Finance Commission was constituted six years after the Tenth Finance Commission. Similarly, the Fourteenth Finance Commission was constituted five years and two months after the Thirteenth Finance Commission.
