Introduction

Article 280 of the Constitution of India, 1950 (COI) provides for a Finance Commission which is a quasi-judicial body. It is constituted by the President of India.

Finance Commission

Article 280(1) states that the President shall, within two years from the commencement of this Constitution and thereafter at the expiration of every fifth year or at such earlier time as the President considers necessary, by order constitute a Finance Commission which shall consist of a Chairman and four other members to be appointed by the President.

Composition of the Finance Commission

• Article 280(2) states that the Parliament may by law determine the qualifications which shall be requisite for appointment as members of the Commission and the manner in which they shall be selected.
• The Finance Commission consists of a chairman and four other members to be appointed by the President.
• They hold office for such period as specified by the president in his order. They are eligible for reappointment.
• The chairman should be a person having experience in public affairs and the four other members should be selected from amongst the following:
  • A judge of the high court or one qualified to be appointed as one.
  • A person who has specialized knowledge of finance and accounts of the government.
  • A person who has wide experience in financial matters and in administration.
  • A person who has special knowledge of economics.

Functions of the Finance Commission

• Article 280(3) states that it shall be the duty of the Commission to make recommendations to the President as to—

(a) The distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them and the allocation between the States of the respective shares of such proceeds.

(b) The principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India.

(bb) The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats in the State on the basis of the recommendations made by the Finance Commission of the State.

(c) The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State.

(d) Any other matter referred to the Commission by the President in the interests of sound finance.