Union Cabinet has approved the terms of reference of the 16th Finance Commission. However, details on its members and Chairperson as well as exact terms of reference are expected to be approved at a later date.
Major Terms of Reference for 16th Finance Commission
- Division of Tax Proceeds: Recommending the distribution of taxes between the Union Government and the States under Chapter I, Part XII of the Constitution.This includes the allocation of shares among the States from these tax proceeds.
- Principles for Grants-in-Aid: Establishing the principles governing grants-in-aid to the States from the Consolidated Fund of India.This encompasses determining the amounts to be provided to the States as grants-in-aid, specifically under Article 275 of the Constitution, for purposes beyond those outlined in the provisos to clause (1) of that article.
- Enhancing State Funds for Local Bodies: Identifying measures to enhance the Consolidated Fund of a State.This is aimed at supplementing the resources available to Panchayats and Municipalities within the State, based on recommendations made by the State’s own Finance Commission.
- Evaluation of Disaster Management Financing: The Commission may review the current financing structures related to Disaster Management initiatives.This involves examining the funds created under the Disaster Management Act, 2005, and presenting suitable recommendations for improvements or alterations.
Finance Commission
- The Finance Commission in India is a constitutional body established under Article 280 of the InSdian Constitution.
- Its primary function is to recommend the distribution of financial resources between the central government and the state governments.
- The Fifteenth Finance Commission was constituted on 27th November, 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 up to the financial year 2025-26.
Criteria for Devolution
| Criteria | 14th FC (2015-20) | 15th FC (2020-21) | 15th FC (2021-26) |
| Income Distance | 50.0 | 45.0 | 45.0 |
| Area | 15.0 | 15.0 | 15.0 |
| Population (1971) | 17.5 | – | – |
| Population (2011)# | 10.0 | 15.0 | 15.0 |
| Demographic Performance | – | 12.5 | 12.5 |
| Forest Cover | 7.5 | – | – |
| Forest and Ecology | – | 10.0 | 10.0 |
| Tax and fiscal efforts* | – | 2.5 | 2.5 |
| Total | 100 | 100 | 100 |