Finance Commission is constituted to define financial relations between the Center and the States. Under the provision of Article 280 of the constitution, the President appoints a Financial Commission for the specific purpose of devolution of non-plan revenues resources. The functions of the commission are to make recommendations to the President in respect of:

1. The distribution of net proceeds of taxes to be shared between the Union and the           States and the allocation of share of such proceeds among the States.The principles       which should govern the payment of grant-in-aid by the Center to the States.
2. The principles which should govern the payment of grant-in-aid by the Center to the States.
3. Any other matter concerning financial relations between the Center and the States.
   The Finance Commission of India came into existence in 1951. The Finance commission is established under article    280 of the Indian Constitution of India by the President of India. The Indian Finance Commission Act was passed      to give a structured format to the Finance Commission of India as per the world standard. The need for the Finance    Commission was felt by the British for guiding the finance of India. The structure of the modern Act was laid in the    early 1920’s. The Finance Commission is formed to define the financial relations between the center and the state.      The Finance Commission Act of 1951 tells about the qualification, appointment, term, eligibility, disqualification,        powers etc of the Finance Commission.

Functions Of The Finance Commission

The Finance Commission’s duty is to recommend to the President as to-
  • The distribution of net proceeds of taxes between the Union and the States.
  • To evaluate the increase in the Consolidated Fund of a state to affix the resources of the Panchayat in the state.
  • To evaluate the increase in the Consolidated Fund of a state to affix the resources of the Municipalities in the state.

Implementation Of The Recommendation Of Finance Commission

The recommendation of the Finance Commission is implemented by an order of the President or by executive orders.

Powers of the Commission:

The Finance Commission has the following powers:
  • The Commission shall have all the powers of the Civil Court as per the Code of Civil Procedure, 1908.
  • It can call any witness, or can ask for the production of any public record or document from any court or office.
  • It can ask any person to give information or document on matters as it may feel to be useful or relevant.
  • It can function as a civil court in discharging its duties.

Qualifications for appointment and the manner of selection:

  • The Chairman of the Finance Commission is selected among persons who have had the experience of public affairs, and four other members are selected among persons who are, or have been, or are qualified as judges of High Court, or
  • Have knowledge of finance, or
  • Have vast experience in financial matters and are in administration, or
  • Have knowledge of economics

Term of Office of the members:

Every member of the commission shall be in the office as specified by the President. He can also be reappointed, provided that he has already addressed a letter to the President for his resignation.

Conditions of service and salaries and allowance of members:

  • Each member should provide whole time or part time service to the Commission as the President with respect to each case might specify.
  • Each member shall receive salaries according to the provisions made by the central government.


A member may be disqualified if:

  • He is of unsound mind.
  • He is involved in a vile act.
  • If his interests are likely to affect the smooth functioning of the Commission.

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In above context so far 11 Financial Commissions have been appointed which are as follows:

Finance Commission Year of Establishment Chairman Operational Duration Year of Submitting Report
I 1951 K.C.Niyogi 1952-1957 1952
II 1956 K. Santhanam 1957-1962 1956* and 1957
III 1960 A. K. Chanda 1962-1966 1961
IV 1964 P. V. Rajamannar 1966-1969 1965
V 1968 Mahavir Tyagi 1969-1974 1968* and 1969
VI 1972 Brahma Nand Reddy 1974-1979 1973
VII 1977 J. M. Shellet 1979-1984 1978
VIII 1983 Y.V. Chawan 1984-1989 1983* and 1984
IX 1987 N.K.P. Salve 1989-1995 1989
X 1992 K.C. Pant 1995-2000 Nov 26, 1994
XI 1998 A.M. Khusro 2000-2005 Jan 15, 2000*; July 7, 2000 and Aug 31, 2000
XII 2003 C. Rangarajan 2005-2010 Nov 30, 2004
XIII 2007 Vijay L. Kelkar 2010-2015 Constitued in Nov 2007

* Interim Report

All the above 11 Commissions have submitted their report in the year mentioned above. The recommendation of the various commissions can be divided into three heads:
A. Division and distribution of income tax and other taxes.
B. Grants-in-aids.
C. Loans to the state by the center.
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