16TH
FINANCE COMMISSION - POLITY
News: Govt begins process of constituting
Sixteenth Finance Commission
What's
in the news?
●
Recently, the Union Cabinet has given the
green light to the terms of reference (ToR) for the Sixteenth Finance
Commission.
Key
takeaways:
●
The Sixteenth Finance Commission will
cover the five-year period beginning 2026-27, the report for which is expected
to be taken up by the government at the time of presentation of Budget 2026-27.
16th
FC - Terms of Reference:
1.
Division of Tax Proceeds:
●
Recommending the distribution of taxes
between the Union Government and the States under Chapter I, Part XII of the
Constitution.
●
This includes the allocation of shares among the States from these tax proceeds.
2.
Principles for Grants-in-Aid:
●
Establishing the principles governing
grants-in-aid to the States from the Consolidated Fund of India.
●
This encompasses determining the amounts
to be provided to the States as grants-in-aid, specifically under Article 275 of the Constitution, for
purposes beyond those outlined in the provisos to clause (1) of that article.
3.
Enhancing State Funds for Local Bodies:
●
Identifying measures to enhance the Consolidated Fund of a State.
●
This is aimed at supplementing the
resources available to Panchayats and Municipalities within the State, based on
recommendations made by the State's own Finance Commission.
4.
Evaluation of Disaster Management Financing:
●
The Commission may review the current
financing structures related to Disaster Management initiatives.
●
This involves examining the funds created
under the Disaster Management Act, 2005,
and presenting suitable recommendations for improvements or alterations.
Go
back to basics:
Finance
Commission:
●
The Finance Commission is constituted by
the President under Article 280 of the Constitution, mainly
to give its recommendations on distribution of tax revenues between the Union
and the States and amongst the states themselves.
●
The Commission’s work involves redressing
the vertical imbalances between the taxation powers and expenditure
responsibilities of the Centre and the States respectively and equalisation of
all public services across the states.
15th
Finance Commission:
●
The 15th Finance Commission, chaired by NK Singh, had submitted two reports.
○
The first report, consisting of
recommendations for the financial year 2020-21, was tabled in Parliament in
February 2020.
○
The final report with recommendations for
the 2021-26 period was tabled in Parliament on February 1, 2021.
●
The share of states in the central taxes
for the 2021-26 period was recommended to be 41 percent same as that for 2020-21.
○
This was less than the 42 per cent share
recommended by the 14th Finance Commission for 2015-20 period, with the 1
percent adjusted to factor in the new union territories of Jammu and Kashmir,
and Ladakh.
Further
Reference - Finance Commission