Constitutional text

(1) 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... (3) 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... (b) the principles which should govern the grants-in-aid of the revenues of the States...

Source: Constitution of India, as published by the Ministry of Law and Justice.

History and context

The Finance Commission is a key institution of cooperative federalism. The 15th Finance Commission (2020-25), chaired by N. K. Singh, recommended states receive 41% of the divisible pool of central taxes (down from 42% recommended by the 14th Commission, due to the creation of J&K as a UT). Southern states have repeatedly argued that the formula disadvantages states with better demographic performance, as population figures used in the formula penalise states that controlled population growth.

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Last reviewed: 3 July 2026