16th Finance Commission: The central government approved the "Terms of Reference" (ToR) of the 16th Finance Commission to recommend the ratio for the devolution of taxes between the Centre and states. In addition, it would also review financing disaster management initiatives, for five years beginning April 1, 2026. As per an official statement, the commission would submit its report for the five-year period (2026–27 to 2030–31) to the President by October 31, 2025.
The commission will examine current arrangements for funding disaster management initiatives with reference to the funds established under the Disaster Management Act, 2005, in addition to tax devolution and state revenue augmentation strategies. "The Union Cabinet chaired by Prime Minister Narendra Modi has approved the Terms of Reference for the Sixteenth Finance Commission. The 16th Finance Commission's recommendations, upon acceptance by the government, would cover a period of five years commencing April 1, 2026," the statement said.
The official said that the Cabinet meeting was held on Tuesday and that the names of the chairperson and members of the 16th Finance Commission would be finalised soon. The Terms of Reference for the 16th Finance Commission will be notified in due course.
Commission to make recommendations on key matters
The commission shall make recommendations in matters including the distribution between the Union and states of net proceeds of taxes which are to be divided between them and the allocation between states of the respective shares of such proceeds.
The commission will recommend regarding the principles that should control state grants-in-aid of revenues from the Consolidated Fund of India as well as the amounts that should be given to the states in this manner. Additionally, it would recommend actions required to increase a state's consolidated fund in order to augment the resources of the state's municipalities and panchayats.
"The commission may review the present arrangements on financing disaster management initiatives, with reference to the funds constituted under the Disaster Management Act, 2005, and make appropriate recommendations thereon," the statement added.
About the Finance Commission
It should be mentioned here that the Finance Commission is a constitutional body that gives suggestions on centre-state financial relations.
The former 15th Finance Commission under NK Singh had recommended that states be given 41 per cent of the divisible tax pool of the Centre during the five-year period 2021–22 to 2025–26, which is at the same level as was recommended by the 14th Finance Commission.
As per the 15th Finance Commission, Gross Tax Revenue (GTR) for the 5-year period is expected to be Rs 135.2 lakh crore. Out of that, the divisible pool (after deducting cess and surcharges and the cost of collection) is estimated to be Rs 103 lakh crore.
(With inputs from PTI)