Which body recommends the distribution of taxes between Center and States?
- AOption (a)
Planning Commission
- BOption (b)
Finance Commission
- COption (c)
Parliament
- DOption (d)
NITI Aayog
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Correct answer
Finance Commission
Why this answer is correct
The correct answer is Finance Commission.
Key Points
- The Finance Commission is a constitutional body established by the President of India under Article 280 of the Indian Constitution.
- Its primary mandate is to define the financial relations between the Central Government and the State Governments, ensuring a balanced distribution of resources.
- The commission provides critical recommendations on the distribution of net proceeds of taxes between the Union and the States, a process known as vertical devolution.
- It also determines the principles for horizontal devolution, which is the allocation of tax proceeds among the various State Governments based on specific criteria like population, area, and fiscal capacity.
- Furthermore, it specifies the principles governing grants-in-aid to the States from the Consolidated Fund of India under Article 275.
- The First Finance Commission was constituted in 1951 under the chairmanship of K.C. Neogy, and typically, a new commission is formed every five years.
Additional Information
- NITI Aayog:
- Established on January 1, 2015, it replaced the erstwhile Planning Commission.
- It serves as the premier policy think-tank of the Government of India, fostering cooperative federalism through a bottom-up approach.
- Unlike the Finance Commission, it does not possess the power to allocate or distribute funds to state governments.
- Planning Commission:
- Formed in 1950 as a non-constitutional and non-statutory body to formulate Five-Year Plans.
- It was responsible for central planning and resource allocation before being dissolved in 2014.
- Parliament:
- The supreme legislative body of India, comprising the President, Lok Sabha, and Rajya Sabha.
- It holds the authority to enact laws and pass the Union Budget, but it relies on the technical recommendations of the Finance Commission for tax sharing mechanisms.