16th Finance Commission has recommended maintaining the states' share in the divisible pool of central taxes at 41 percent

•  The 16th Finance Commission has recommended maintaining the states' share in the divisible pool of central taxes at 41 percent, while emphasizing outcome-based spending, greater transparency in tax devolution data, and stronger fiscal discipline at the state level.

•   The panel stated that there is a need to improve efficiency in public spending and strengthen the fiscal accountability framework across all states.

States with the largest share in central tax devolution

•   According to the new formula, Karnataka's share in central tax devolution has been increased to 4.13% for 2026-31, compared to 3.65% under the 15th Finance Commission.

•  This would mean an additional ₹7,387 crore, increasing Karnataka's allocation to ₹63,050 crore, whereas under the previous formula, Karnataka would have received ₹55,663 crore.

•  Kerala emerged as the second-largest beneficiary, with its allocation increasing by ₹6,975 crore and its share rising from 1.93% to 2.38%.

•  Gujarat (₹4,228 crore) and Haryana (₹4,090 crore) also benefited significantly, given their higher per capita income and substantial contribution to GDP.

•  Madhya Pradesh received the least benefit, with its allocation decreasing by ₹7,677 crore to ₹1.12 lakh crore. Its share in the central divisible pool decreased from 7.85% to 7.35%.

16th Finance Commission

•   The 16th FC was formally constituted on December 31, 2023, under the chairmanship of Arvind Panagariya, with the mandate to make recommendations for a five-year period from April 1, 2026, to March 31, 2031. The Finance Commission is a constitutional body under Article 280.

•    It submitted its report to the President of India on November 17, 2025, which was tabled in Parliament by Mrs. Sitharaman on Sunday (February 1, 2026).

•   The fiscal deficit for the next financial year is projected at 4.3 percent of GDP, compared to 4.4 percent for the financial year ending March 2026.

•   The debt-to-GDP ratio is projected at 55.6 percent of GDP in the Budget Estimates (BE) 2026-27, compared to 56.1 percent of GDP in the Revised Estimates (RE) 2025-26.

•  The 16th Finance Commission has recommended grants totaling ₹7,91,493 crore for duly constituted Rural Local Bodies (RLBs) and Urban Local Bodies (ULBs) for the period 2026-27 to 2030-31.