16th Finance Commission

• The Union Cabinet approved the terms of reference (ToR) for the Sixteenth Finance Commission It will recommend the formula for sharing revenues between the Centre and the States for the five-year period beginning on April 1, 2026.
• The government has set a deadline of October 31, 2025, for the panel to submit its recommendations.
• Key recommendation- on distribution of net proceeds of taxes between the Centre and States and allocation among States of the respective share of such proceeds
• the panel will also prescribe measures needed to augment the Consolidated Fund of a State to supplement resources of the panchayats and local bodies on the basis of recommendations made by the respective State Finance Commissions.
• Under the ToR, the panel will recommend principles that should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India and the sums to be paid to the States by way of grants-in-aid of their revenues.
• Also, it may review the existing arrangements on financing Disaster Management initiatives and make appropriate recommendations.

ABOUT FINANCE COMMISSION

• Finance Commission are constitutional bodies set up under Article 280 of the Constitution every five years to make recommendations on the distribution of financial resources between the Union and the states.
• Individual commissions operate under the terms of reference (ToR) which are different for every commission.
• The First Commission was established in 1951 (Chairman- KC Neogy) under The Finance Commission (Miscellaneous Provisions) Act, 1951.
• As per the constitution, the Commission consists of a chairman and four other members.
• The recommendations of FCs are advisory in nature and not binding on the Union government.