A Note on Finance Commission of India


The Finance Commission of India was established on 22nd November 1951. It is constituted under Article 280 of the Constitution of India by the President of India at the expiration of every fifth year or at such earlier time as the president consider necessary. It was formed to describe the financial relationship between the Centre and the State. The main objective of the Commission (a non-political body) is to adjust the imbalances between the functions and the division of financial resources between the two different sets of the Governments in a federation and to transfer the funds from the Central Government to the State Government. It also serves as a Constitutional body for the Purpose of allocation of certain resources of Income and Grant between the State and the Union Government.

Constitution of the Finance commission

The Finance Commission consists of a Chairman and four other members to be appointed by the President. Clause 2 of Article 20 empowers the Parliament to determine the qualification and disqualification of the Chairman and the members of Commission and the manner in which then should be selected.

Accordingly, the Finance Commission (Miscellaneous Provisions) Act, has been enacted by the Parliament which lays down that the Chairman is to be a person having experience in Public affairs and the four other members are to be selected from among person qualified to be appointed as the High Court Judges or having special knowledge of the Finance and account of the Government. The Finance Commission is a quasi-Judicial body which enjoys all the Powers of the Civil Code as per the Civil Procedure Code, 1908, in respect of Summoning and enforcing the attendance of the witnesses, requiring the production of any documents and the requisitioning any public record from any court of office. It is also an advisory body that recommends advice relating to the distribution of Union taxes and Duties and grants-in-aid to the Government but these recommendations of the Finance Commission does not make binding on the Government by the Constitution.

Duties of the Finance Commission

According to Article 280 Clause 3 the duties of the Finance Commission shall be to make President of India on the following manners:

1. The distribution of the net proceeds of the Taxes which are to be or may be divided between them and allocation between the States of the respective shares of the such proceeds;

2. The Finance Commission of India also determines the Principal that should govern the Grants-in-aid of the revenues to the State by the Centre out of the consolidated fund of India.

3. The masseurs needed to augment the consolidated fund of a state to supplement the resources of the panchayat and the Municipalities in the State of the basis of the recommendation by the State Finance Commissions.

4. Any other matter referred by the President in the interest of sound Finance. It is an important function of the Finance Commission of India that has the responsibility of considering any matter refers to the Commission by the President in the interest of “Sound Finance”.

This note has been written by Gaurav Kumar from Surendranath Law College, Kolkata

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