In India’s system of government, the Finance Commission is a very important institution. It has a big say in how money is shared between the central government and the state governments. According to Article 280 of the Constitution, the Finance Commission is set up as an independent group. Its main job is to suggest rules on how money should be divided from the central government to the states.
The Finance Commission, established under Article 280 of the Indian Constitution by the President, is a constitutional body tasked with allocating specific revenue resources between the Union and State Governments. Its primary objective is to delineate and regulate the financial relationships between the central government and the states. The Commission was instituted in 1951.
Constitutional Provision
Every five years, starting two years after the commencement of the Indian Constitution under Article 280, the President is required to establish a Finance Commission of India. The Commission’s responsibilities include making recommendations to the President regarding the distribution of taxes between the Union and the States, as well as the allocation of shares among the States.
Additionally, it advises on the principles governing grants-in-aid to the States from the Consolidated Fund of India and addresses any other financial matters referred by the President. The Commission is empowered to determine its own procedures and is granted powers by Parliament to fulfill its functions. It’s worth noting that the President can appoint the Finance Commission before the lapse of five years if deemed necessary.
Composition of Finance Commission
- Chairman: Leads the Commission and oversees its operations, requiring prior experience in public affairs.
- Four Members: Serve on the Commission alongside the Chairman.
- Parliament establishes the qualifications and selection procedures for Commission members through legal means.
Qualifications of Finance Commission
- Qualifications for Members: Members must either be qualified as High Court judges, possess expertise in finance or financial matters combined with administrative experience, or have knowledge in economics.
- Appointment Authority: All appointments are made by the President of India.
- Grounds of Disqualification: Members can be disqualified if found to be of unsound mind, engaged in reprehensible conduct, or if there is a conflict of interest.
- Tenure: The tenure of Members is determined by the President, with the possibility of reappointment in some cases.
- Duty Schedule: Members are required to serve the Commission on a part-time or as-needed basis, as determined by the President.
- Salary: Member salaries are governed by provisions outlined in the Constitution.
Functions of Finance Commission
- Distribution of Tax Proceeds: The Finance Commission decides how to divide the tax money between the central government and the states, and among the states themselves.
- Grants-in-Aid Principles: It sets the rules for giving financial aid to the states from the Consolidated Fund of India.
- Boosting Local Resources: The Commission helps in increasing the funds available to local bodies like panchayats and municipalities by recommending steps to be taken, based on suggestions from the state Finance Commission.
- President’s Referrals: If the President thinks it’s important for financial stability, they can ask the Commission to look into any related matter.
- Five-Year Review: Every five years, the Commission decides on the basis for sharing taxes and grants-in-aid principles.
- Reporting to Parliament: The Commission’s recommendations and explanations about the government’s actions on them are presented to the Parliament.
- Legal Authority: According to the Code of Civil Procedure 1908, the Commission has the powers of a Civil Court. It can call witnesses and request public documents or records from any office or court.
Read about 16th Finance Commission Appointment.