Study Notes on FINANCE COMMISSION

FINANCE COMMISSION

Although the Constitution has made an effort to allocate every possible source of revenue either to the Union or the States, but this allocation is quite broad based.  For the purpose of allocation of certain sources of revenue, between the Union and the State Governments, the Constitution provides for the establishment of a Finance Commission under Article 280.  According to the Constitution, the President of India is authorized to set up a Finance Commission every five years to make a recommendation regarding the distribution of financial resources between the Union and the States.

Constitution

Finance Commission is to be constituted by the President every 5 years. The Chairman must be a person having 'experience in public affairs'. Other four members must be appointed from amongst the following:-

1.A High Court Judge or one qualified to be appointed as High Court Judge;

2.A person having knowledge of the finances and accounts of the Government;

3.A person having work experience in financial matters and administration;

4.A person having special knowledge of economics

Functions

The Finance Commission recommends to the President as to the distribution between the Union and the States of the net proceeds of taxes to be divided between them and the allocation between the States of  respective shares of such proceeds; the principles which should govern the grantsin-aid of the revenue 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 and Municipalities in the State any other matter referred to the Commission by the President in the interest of sound finance.