• The Finance Commission of India are commissions periodically constituted by the President of India under Article 280 of the Indian Constitution to define the financial relations between the central government of India and the individual state governments.
  • The First Commission was established in 1951 under The Finance Commission (Miscellaneous Provisions) Act, 1951.
  • Fifteen Finance Commissions have been constituted since the promulgation of Indian Constitution in 1950.
  • Individual commissions operate under the terms of reference which are different for every commission, and they define the terms of qualification, appointment and disqualification, the term, eligibility and powers of the Finance Commission.
  • As per the Constitution, the Commission is appointed every five years and consists of a chairman and four other members.
  • The most recent Finance Commission was constituted in 2017 and is chaired by N. K.Singh, a former member of the Planning Commission.

Salient Features of Finance Commission of India

  • Article 280 (FC) & Article 281 (Recommendations of FC)
  • Finance Commission of India is a quasi-judicial body
  • Finance Commission of India is constituted by the president every fifth year
  • Make recommendation regarding distribution of financial resources between the Union and the States
  • Recommendations made are only of advisory nature (Not binding / nowhere laid down in the Constitution)
  • Constitution of India envisages it as balancing wheel of fiscal federalism
  • Term is specified by the President and in some cases, the members are also re-appointed.

Article 280 of the Indian Constitution defines the scope of the commission

  1. The President will constitute a finance commission within two years from the commencement of the Constitution and thereafter at the end of every fifth year or earlier, as the deemed necessary by him/her, which shall include a chairman and four other members.
  2. Parliament may by law determine the requisite qualifications for appointment as members of the commission and the procedure of selection. Finance Commission of India
  3. The commission is constituted to make recommendations to the president about the distribution of the net proceeds of taxes between the Union and States and also the allocation of the same among the States themselves. It is also under the ambit of the finance commission to define the financial relations between the Union and the States. They also deal with the devolution of unplanned revenue resources.

The Chairman must be a person having ‘experience in public affairs. Other four members must be appointed from amongst the following: 

  • A High Court Judge or one qualified to be appointed as High Court Judge;
  • A person having knowledge of the finances and accounts of the Government;
  • A person having work experience in financial matters and administration;
  • A person having special knowledge of economics.

Powers of Finance Commission of India

  • The Commission shall have all the powers of the Civil Court as per the Code of Civil Procedure, 1908.
  • It can call any witness, or can ask for the production of any public record or document from any court or office.
  • It can ask any person to give information or document on matters as it may feel to be useful or relevant.
  • It can function as a civil court in discharging its duties.

Functions of Finance Commission of India

  • 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 Grants-in-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.

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