Explainer: As Govt Constitutes 16th Finance Commission, Know What Is Finance Commission And Its Responsibilities

The Sixteenth Finance Commission, appointed recently, has been requested to make its report available by 31st day of October, 2025 covering a period of five years commencing on the 1st day of April, 2026.

New Delhi: The Indian Government constituted the Sixteenth Finance Commission announcing Dr Arvind Panagariya as its Chairman on 31 December 2023.

The Sixteenth Finance Commission shall make recommendations as to the following matters:

(i)        The distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them under Chapter I, Part XII of the Constitution and the allocation between the States of the respective shares of such proceeds;

(ii)       The principles which 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 under article 275 of the Constitution for the purposes other than those specified in the provisos to clause (1) of that article; and

(iii)      The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats and Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State.

A notification released by the Ministry of Finance had said, "The Sixteenth Finance Commission may review the present arrangements on financing Disaster Management initiatives, with reference to the funds constituted under the Disaster Management Act, 2005 (53 of 2005), and make appropriate recommendations thereon. The Sixteenth Finance Commission has been requested to make its report available by 31st day of October, 2025 covering a period of five years commencing on the 1st day of April, 2026."

Establishment Of Finance Commission As Per Indian Constitution

The Finance Commission is a Constitutionally mandated body appointed by the President under Article 280 of the Constitution. The first Finance Commission was set up in 1951, with the Fifteenth Finance Commission being constituted in November 2017 against the backdrop of the abolition of Planning Commission.

Finance Commission Functions --Centre's Revenue Sharing Formula For States

The duty of the Commission is to make recommendations to the President on the following:

Finance Commission shall recommend on the distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them and the allocation between the States of the respective shares of such proceeds; the principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India; the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats in the State on the basis of the recommendations made by the Finance Commission of the State; the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State; any other matter referred to the Commission by the President in the interests of sound finance.

(Content Sourced From PIB/Finance Commission Website)