Question 101
Which body recommends the distribution of tax revenues between union and states?
- AOption (a)
NITI Aayog
- BOption (b)
Parliament
- COption (c)
Finance Commission
- DOption (d)
Planning Commission
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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 under Article 280 of the Constitution of India to define the financial relations between the central government and the individual state governments.
- It is constituted by the President of India every five years or at such earlier time as the President considers necessary to ensure fiscal stability and cooperative federalism.
- The primary mandate of the commission is to recommend the distribution of net proceeds of taxes between the Union and the States, commonly referred to as vertical devolution.
- It also determines the allocation of these tax proceeds among the states themselves, known as horizontal devolution, based on various criteria like fiscal capacity and demographic performance.
- The commission specifies the principles that govern Grants-in-aid to the states out of the Consolidated Fund of India as per Article 275.
- Its recommendations are advisory in nature and are laid before both Houses of Parliament by the President under Article 281.
- The 15th Finance Commission, chaired by N.K. Singh, recommended that the states be given 41% of the divisible pool of central taxes for the period 2021-2026.
Additional Information
- NITI Aayog
- Established on January 1, 2015, it replaced the Planning Commission as the premier policy think tank of the Government of India.
- It provides directional and policy inputs while fostering cooperative federalism through a bottom-up approach.
- Planning Commission
- Formed in 1950 as a non-constitutional and non-statutory body to formulate India's Five-Year Plans.
- It was dissolved in 2014 to make way for a more contemporary and collaborative institution.
- Parliament
- The supreme legislative body of India, governed by Articles 79 to 122 of the Constitution.
- While it approves the Union Budget and tax laws, it relies on the Finance Commission for professional recommendations on tax revenue sharing.