1. Home
  2. Blog
  3. UPSC

Sixteenth Finance Commission

Why is it in the news?

  • Union Cabinet approved Terms of Reference (ToR) for Sixteenth Finance Commission.


About Finance Commission (FC)

·      It is a constitutional body established every fifth year or earlier by the President under Article 280 of the Constitution.

·      Commission’s role involves addressing vertical imbalances between taxation powers and expenditure responsibilities of the centre and states, and equalization of public services across states.




Terms of Reference (ToR)

  • To be set up for a five-year term starting April 1, 2026.
  • Distribution between the Union and States of net proceeds of taxes and allocation between states of such proceeds.
  • Principles governing grants-in-aid and revenues of states under Article 275 of the Constitution.
  • Measures needed to augment the Consolidated Fund of a State to supplement resources of Panchayats and Municipalities.
  • Review present arrangements on financing Disaster Management initiatives.


Process of FC Recommendations

  • FC works based on terms of reference set by the finance ministry, approved by the centre.
  • Recommendations, upon acceptance by the government, cover a five-year period.


About 15th FC

·      Chaired by NK Singh, the 15th FC was set up in 2017.

·      Made recommendations for the periods 2020-21 and 2021-22 to 2025-26.


Recommendations include:

·      Vertical devolution, with states’ share in central taxes set at 41%.

·      Criteria for horizontal devolution based on income distance, area, population (2011), demographic performance, forest and ecology, and tax and fiscal efforts.

·      Suggested reducing fiscal deficit to 4% of GDP by 2025-26.

Get free UPSC Updates straight to your inbox!

Get Updates on New Notification about APPSC, TSPSC and UPSC

Get Current Affairs Updates Directly into your Inbox

Discover more from AMIGOS IAS

Subscribe now to keep reading and get access to the full archive.

Continue reading