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India's 16th Finance Commission - Coggle Diagram
India's 16th Finance Commission
Central Idea
It would recommend formula for revenue distribution between the Centre and the States for five-year period starting April 1, 2026.
The Centre has appointed Arvind Panagariya, former Niti Aayog vice chairman, as chairman of XVI FC.
Major Terms
of Reference
Establishing principles governing grants-in-aid to the States from the Consolidated Fund of India.
Allocation of shares among the States from tax proceeds.
Determining amounts for grants-in-aid under Article 275 of the Constitution.
Recommending the distribution of taxes between the Union Government and the States.
Other ToR
Reviewing financing structures related to Disaster Management initiatives.
Supplementing resources for Panchayats and Municipalities based on State Finance Commission recommendations.
Recommending improvements or alterations to funds created under the Disaster Management Act, 2005.
Identifying measures to enhance the Consolidated Fund of a State.
About Finance
Commission
Criteria for devolution: Income Distance, Area, Population (1971, 2011), Demographic Performance, Forest Cover, Tax and fiscal efforts.
Fifteenth Finance Commission recommendations valid until the financial year 2025-26.
Constitutional body under Article 280, recommends financial resource distribution.
Finance Commission (Miscellaneous Provisions) Act, 1951, further outlines the terms
Key Recomm
-endations
Recommended fiscal deficit limits for states, aiming for 4% fiscal deficit for the Centre by 2025-26.
Proposals include a Modernisation Fund for Defence and Internal Security, and reforms in Centrally Sponsored Schemes.
States' share in central taxes maintained at 41% for 2021-26, adjusting for Jammu and Kashmir and Ladakh.
Challenges
Decisions by the GST Council on tax rates could impact the FC’s revenue-sharing calculations.
While Centre often adopts the FC’s suggestions on tax devolution and fiscal targets, other recommendations may be overlooked.
Coexistence with the GST Council, a permanent constitutional body, presents a new challenge.