The State Finance Commission is a constitutional body established under Article 243-I and Article 243-Y of the Constitution of India. These articles were added by the 73rd and 74th Constitutional Amendments Act, 1992, which aimed to strengthen Panchayati Raj Institutions (PRIs) and Municipalities.
The constitution of the SFC is mandated by the Governor of the state every five years.
The structure of the State Finance Commission is determined by the respective State Legislatures. While the chairman is usually a person of public importance, the act does not specify a maximum number of members. Hence, statement 2 is incorrect.
The functions of the SFC include making recommendations to the Governor on the following matters:
Distribution between the state and the Panchayats of the net proceeds of taxes, tolls, and fees leviable by the state.
Allocation of the share of such proceeds among Panchayats at all levels.
Grants-in-aid to Panchayats from the Consolidated Fund of the State.
Measures to augment the Consolidated Fund of a Panchayat.
Financial condition of Panchayats.
For Municipalities, it includes similar recommendations regarding the distribution of state taxes, assignment of taxes, grants-in-aid, and measures to improve the financial position of urban local bodies.
The recommendations made by the State Finance Commission are advisory in nature and are not binding on the state government. The government may choose to accept or reject these recommendations. Therefore, statement 3 is incorrect.
The first State Finance Commissions were constituted in 1994.
