Question

Consider the following statements about the Finance Commission’s role:

1. It recommends the allocation of tax proceeds between the Centre and the states.

2. It advises on measures to improve the financial position of panchayats and municipalities.

3. It has the authority to directly levy taxes on states.

• A. 1 and 2 only
• B. 1 and 3 only
• C. 2 and 3 only
• D. All of the above

Answer 1

Answer:

A. 1 and 2 only

Finance Commission:

• The Finance Commission is a constitutional body established under Article 280 of the Indian Constitution.

• It is a quasi-judicial institution responsible for recommending the distribution of financial resources between the Union government and the state governments.

• Key Functions:

  • Recommending the division of net proceeds of divisible taxes between the Union and states.

  • Recommending the allocation of the states' share of such proceeds among the states.

  • Advising on the principles that should govern grants-in-aid to states from the Consolidated Fund of India.

  • Recommending measures to augment the Consolidated Fund of a State to supplement the resources of Panchayats and Municipalities.

  • Making recommendations on any other matter referred to it by the President in the interest of sound finance.

• Composition: The Finance Commission consists of a Chairman and four other members appointed by the President.

• Independence: The Finance Commission is an independent body, and its recommendations, while not binding, carry significant weight and are usually accepted by the government.

• Panchayati Raj and Urban Local Bodies: While the Finance Commission advises on augmenting the resources for local bodies, it does not have the authority to levy taxes. The power to levy taxes rests with the respective governments (Centre or State).

• Non-tax Levying Power: The Finance Commission is primarily an advisory body focused on resource allocation and does not possess the power to directly levy taxes on states or any other entity. This power is vested with the legislative bodies as per the Constitution.

• Frequency: The President constitutes the Finance Commission typically every five years or as often as he considers it necessary.