Finance Commission

Article 280 provides for a Finance Commission as a quasi-judicial body. It is constituted by the President every fifth year or even earlier.

It is required to make recommendations to the President on the following matters:

• The distribution of the net proceeds of taxes to be shared between the Centre and the states, and the allocation between the states, the respective shares of such proceeds.

• The principles which should govern the grants-in-aid to the states by the Centre (i.e., 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 the municipalities in the state on the basis of the recommendations made by the State Finance Commission.23

• Any other matter referred to it by the President in the interests of sound finance.

Till 1960, the Commission also suggested the amounts paid to the States of Assam, Bihar, Orissa and West Bengal in lieu of assignment of any share of the net proceeds in each year of export duty on jute and jute products.

The Constitution envisages the Finance Commission as the balancing wheel of fiscal federalism in India.