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Home/Rajasthan RAS - Complete Course/Indian Polity & Constitution

Finance Commission

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1. Constitutional Provision & Composition

The Finance Commission (Article 280) is a quasi-judicial body constituted by the President every fifth year or earlier.

Composition: Consists of a Chairman and four other members.

  • Their qualifications, manner of selection, term of office, and eligibility for reappointment are determined by Parliament (via Finance Commission Act, 1951).
  • Members are eligible for reappointment.

2. Functions of Finance Commission

It makes recommendations to the President of India on:

  1. Vertical Devolution: Distribution of net proceeds of taxes between Centre and States.
  2. Horizontal Devolution: Allocation between the States of their respective shares of such proceeds.
  3. Grants-in-aid: Principles governing grants-in-aid to states out of Consolidated Fund of India.
  4. Local Bodies: Measures to augment the Consolidated Fund of a state to supplement resources of Panchayats and Municipalities (on the basis of State FC recommendations).
  5. Any other matter referred in the interest of sound finance.

3. Advisory Nature

Recommendations made by the FC are of an advisory nature only and not binding on the Government. It is up to the Union government to implement its recommendations. Under Article 281, the President lays the FC report before Parliament.