It shall be the duty of the Finance Commission to make recommendations to the President on following matters:-
- The distribution between the Union and the States of the net proceeds of taxes and the allocation between the States of the respective shares of such net proceeds of taxes.
- The principles which should govern the grants in aid of the revenues of the States out of the Consolidated Fund of India.
- The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities and Panchayat in the State on the basis of the recommendations made by the Finance Commission of the State.
- Any other matters referred to commission by President in the interests of sound finance.
- The President shall cause every recommendation made by the Finance Commission under the provisions of this Constitution together with an explanatory memorandum as to the action taken thereon to be laid before each House of Parliament.
Status and Planning Commission
The role of Finance Commission is only advisory in nature and no recommendation of commission is binding on the Government. This provision is criticized by experts and they added that the recommendations of Finance Commission shall not be undermined by the Government unless there are compelling reasons to do so.
The Status of the Finance Commission is diminishing, especially in the area of Centre-State fiscal relations.
Article 275 deals with Grants in aid from the Union to certain States, to meet the costs of developmental and welfare schemes.
The main functions of Finance Commission are now just in determining the revenue gap in each State and providing for filling up the gap by a scheme of devolution.
The Finance Commission shall have all powers of civil court under Code of Civil Procedure (1908) in matters of summoning & enforcing attendance and requisitioning any public record from any court of office. Also, the Finance Commission shall be deemed to be a civil court for purposes of sections 480 and 482 of the CrPC provided under the Finance Commission Act.
Under Article 280 (C), the President may refer any matter to the Finance Commission in the interest of “sound finance.”
Till now the President of India has asked the commission to make recommendations on the principles governing distribution of the net proceeds of estate duty in respect of property Tax on Railway fare and excise duties on sugar and tobacco, etc.
The President also sought recommendations on the rates of interest, and terms of repayment of loans to the various states by the government of India.
These recommendations of the Finance Commissions steadily increase the share of the state governments in the proceeds of the income tax. They have also increased the amount of grants-in-aids to be given to the states. As a result the states now enjoy considerable degree of financial autonomy so necessary for the proper functioning of the federation.
Impact of Planning Commission
- Grants from the Union to certain States
Sums of money, as Parliament may by law provide, shall be charged on the Consolidated Fund of India in each year as grants in aid of the revenues of such States as Parliament may determine to be in need of assistance, and different sums may be fixed for different States, provided that they shall be paid out of the Consolidated Fund of India as grants in aid of the revenues of a State such capital, and recurring sums as may be necessary to enable that State to meet the costs of such schemes of development as may be undertaken by the State with the approval of the Scheduled Tribes in that State or raising the level of administration of the Scheduled Areas therein to that of the administration of the rest of the areas of that State.
The costs of such schemes of development may be undertaken by that State with the approval of the Government of India for the purpose of raising the level of administration of the said areas to that of the administration of the rest of the areas of that State
Any sums payable shall be paid to the autonomous State, and, if the autonomous State comprises only some of those tribal areas, be apportioned between the State as the President may, by order, specify.