Question

Consider the following statements regarding the core functions of the State Finance Commission:

1. Recommending the principles for sharing state taxes with Panchayats.

2. Determining the taxes and duties which may be assigned to Panchayats.

3. Conducting an annual audit of the State's Consolidated Fund.

Which of the statements given above is/are correct?

• A. 1 and 3 only
• B. 2 only
• C. 1 and 2 only
• D. 1, 2, and 3

Answer 1

Answer:

C. 1 and 2 only

State Finance Commission: Core Functions and Constitutional Basis

• The State Finance Commission (SFC) is a constitutional body established under Article 243-I and Article 243-Y of the Constitution of India.
• Its primary role is to review the financial position of Panchayats and Municipalities and recommend measures to strengthen their financial base.

Key Recommendations of the SFC:

• Distribution of State's Net Proceeds: SFC recommends the share of the state's net tax proceeds that should be devolved to Panchayats and Municipalities. This ensures financial autonomy for local bodies.
• Assignment of Taxes and Duties: SFC determines which taxes, duties, tolls, and fees can be levied and collected by Panchayats and Municipalities. This empowers local bodies to generate their own revenue.
• Grants-in-Aid: SFC recommends the principles that govern the distribution of grants-in-aid from the Consolidated Fund of the State to Panchayats and Municipalities.
• Measures to Improve Financial Position: SFC suggests measures to augment the Consolidated Fund of a State to supplement the resources of Panchayats and Municipalities.

Distinction from other Constitutional Bodies:

• Comptroller and Auditor General (CAG): The CAG audits the accounts of the government, including the Consolidated Fund of the State. This is a different function from the SFC, which focuses on financial recommendations for local bodies.
• Union Finance Commission: The Union Finance Commission (Article 280) makes recommendations on the distribution of taxes between the Union and the States, and grants-in-aid to States. The SFC operates at the state level for local bodies.

Relevance for Competitive Exams:

• Understanding the SFC's role is crucial for questions related to Panchayati Raj, local governance, and fiscal federalism in India.
• Memorize the relevant Articles (243-I, 243-Y) and the core functions related to the devolution of taxes and assignment of revenues to local bodies.