Finance Commission (Article-280)

Finance Commission is a constitutional body appointed by President of India as mandated by the Article 280 of the Constitution of India.

The role of Finance Commission is to give suggestions on Centre-State financial relations and recommends on the distribution of net proceeds of taxes between the Centre and States.

Topics Covered:

1) Constitutional Provisions 

A. Article-280

• Appointment of Finance Commission
• Composition of Finance Commission
• Term of Office of Finance Commission
• Eligibility for re-appointment
• Qualifications of Finance Commission
• Functions of Finance Commission

B. Article-281: Recommendations of Finance Commission laid before Parliament

• Are recommendations binding on the government?

2) Important Finance Commissions Appointed

Constitutional Provisions

A.   ARTICLE-280

• Appointment of Finance Commission

Article 280 of the Constitution of India provides for the appointment of a Finance Commission by the President of India every five years. 

• Composition of Finance Commission

Finance Commission consists of 5 members:

1. Chairman
2. 4 other members

All members of Finance Commission to be appointed by President of India.

• Term of Office of Finance Commission

The members of Finance Commission holds the office for the term prescribed in Presidential Order.

• Are members of Finance Commission eligible for re-appointment?  

Yes, the members of Finance Commission are eligible to be re-appointed.

• Qualifications of members of Finance Commission

The constitution gives authority to the Parliament of India to decide upon the qualifications of members of the Finance Commission and the manners in which they need to be selected.

• Functions of Finance Commission

The function of Finance Commission is to make recommendations to the President on the following matters:

(a) The distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them and the allocation between the States of the respective shares of such proceeds;

(b) The principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India;

(bb) the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats in the State on the basis of the recommendations made by the Finance Commission of the State;

(c) the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State;

(d) any other matter referred to the Commission by the President in the interests of sound finance.

B.  ARTICLE-281

The recommendations made by the Finance Commission are laid before each House of Parliament by the President together with an explanatory memorandum as to the action taken on its recommendations.

• Are recommendations made by Finance Commission binding on the Government?

The recommendations made by the Finance Commission are only advisory in nature and not binding on the government. It is upto government to accept the recommendations and grant money to states or reject them.

Important Finance Commissions Appointed:

Article-280 mandated President to appoint a Finance Commission within two years of the commencement of Constitution of India and thereafter every 5th year.

Thus, the 1st Finance Commission was appointed in 1951 which was chaired by K.C.Neogy and it submitted its report for the implementation period of 1952-1957 in 1952. 

The latest in the list is 15th Finance Commission which was appointed in 2017 under the chairmanship of N.K.Singh and is to submit its report for the period of 2021-2026 in 2020.

Suggested Readings:

15th Finance Commission