Question

Which of the following statement(s) correctly describe the functions of the Finance Commissions?

i. The Central Finance Commission recommends the principles that should govern the grants-in-aid to the states out of the Consolidated Fund of India.
ii. The State Finance Commission reviews the financial position of Panchayats and recommends measures to augment the Consolidated Fund of India.
iii. The Central Finance Commission is required to make recommendations on the allocation between the states of their respective shares of tax proceeds.
iv. The State Finance Commission has the final authority to fix the taxes, duties, and fees which may be marked for the Panchayats.

• A. Only i and iii
• B. Only ii and iv
• C. Only i, iii, and iv
• D. All the above (i, ii, iii and iv)

Answer 1

Answer:

A. Only i and iii

Finance Commissions in India: Functions and Roles

• The Finance Commission is a constitutional body constituted under Article 280 of the Indian Constitution.
• Its primary role is to advise the President on matters related to the distribution of financial resources between the Union and the States, and among the States themselves.
• Central Finance Commission:
  • Recommends the distribution of net proceeds of taxes between the Union and the States (vertical and horizontal devolution).
  • Suggests the principles that should govern grants-in-aid to the states from the Consolidated Fund of India to supplement their resources. (Statement i is correct)
  • Recommends measures to augment the Consolidated Fund of a State to supplement the resources of the Panchayats and Municipalities in the State.
  • Proposes devolution of taxes, duties, tolls, and fees levied and collected by the State but assigned to the Panchayats, and their appropriation by the Panchayats. (Statement iii is correct)
• State Finance Commission:
  • Is a constitutional body constituted under Article 243-I (for Panchayats) and Article 243-Y (for Municipalities) of the Constitution.
  • Reviews the financial position of Panchayats and Municipalities.
  • Recommends the distribution of the proceeds of taxes, duties, tolls, and fees levied and collected by the State between the State and the Panchayats/Municipalities.
  • Recommends the principles that should govern grants-in-aid to Panchayats/Municipalities from the Consolidated Fund of the State.
  • It does NOT review the financial position of Panchayats to augment the Consolidated Fund of India; it focuses on the State's Consolidated Fund and local bodies' finances. (Statement ii is incorrect)
  • It recommends taxes, duties, tolls, and fees that may be assigned to the Panchayats by the State government, but it does not have the final authority to fix them; the State Legislature has the authority. (Statement iv is incorrect)
• The Finance Commission is constituted every five years, or earlier if the President deems it necessary.
• Its recommendations are advisory in nature but are generally accepted by the government.