State PCS

Edit Template
Edit Template

16th Finance Commission in 2023, to suggest Centre-state tax disbursement

16th Finance Commission

Context: The Indian government is expected to establish the 16th Finance Commission in the current year. 

Objective of the 16th Finance Commission:

The Commission’s primary objective is to suggest the appropriate ratio for dividing tax revenue between the Centre and states for the next five years, commencing on April 1, 2026.

What is Finance Commission and its Functions?

  • Finance Commission is a constitutional body under article 280 of the Indian Constitution that gives suggestions on Centre-state financial relations.
  • The Finance Commission is a 5 member body including 4 other members appointed by the President.
  • The government of India provides necessary support and manpower including a secretary to the commission to facilitate its work.
  • Under Article 280 of the Constitution, the President of India is required to constitute a Finance Commission at an interval of five years or earlier.
  • Finance Commission also suggests method and formula for distributing the tax proceeds among the states as per the constitutional arrangement and present requirements.
  • The Commission also decides the principles that govern the payment of grants-in-aid to states from the Consolidated Fund of India.
  • The President of India can also refer any other matter to the Finance Commission in the interest of building a sound financial system.

Reports of Finance Commission:

Under Article 281 of the Constitution, the President of India is required to cause laying of the Finance Commission report before each House of Parliament. Along with an explanatory note and the action taken by the government on the Commission’s recommendations.

Important highlights from 15th Finance Commission Report:

The previous Finance Commission submitted its report on November 9, 2020, for the 5 fiscals — 2021-22 to 2025-26 — to the President. 

The 15th Commission under NK Singh had kept the tax devolution ratio at 42 per cent — at the same level suggested by the 14th Commission

The central government accepted the report of the commission. Accordingly, the states are being given 42 per cent of the divisible tax pool of the Centre during the period 2021-22 to 2025-26.

The 15th finance commission’s recommendations include the fiscal deficit, debt path for the Union and states, and additional borrowing room to states based on performance in power sector reforms.

As per the glide path for fiscal consolidation, the government aims to bring down the fiscal deficit to 4.5 per cent of gross domestic product (GDP) by the 2025-26 fiscal.

For the current fiscal, the deficit is projected at 5.9 per cent of GDP, lower than 6.4 per cent in the last fiscal ended March 31, 2023.

Challenges and Issues in front of 16th Finance Commission:

To bring down the fiscal deficit below 4 .5 per cent Finance Commission has to cut revenue distribution percentage between Centre and States.

Recent Posts

Demo Class/Enquiries

blog form

More Links
What's New
IAS NEXT is a topmost Coaching Institute offering guidance for Civil & Judicial services like UPSC, State PCS, PCS-J exams since more than 10 years.
Contact Us
Social Icon

Copyright ©  C S NEXT EDUCATION. All Rights Reserved