- The Finance Commission of India came into existence in 1951 under Article 280 of the Indian Constitution.
- It was formed to define the financial relations between the Centre and the State.
- The Finance Commission Act of 1951 states the terms of qualification, appointment and disqualification, the term, eligibility and powers of the Finance Commission.
- The commission is appointed every five years.
- It is a quasi-judicial body.
It consists of a chairman and four other members.
The chairman must be a person having 'experience in public affairs, and the other four members must be appointed from amongst the following
(a) A High Court judge or one qualified to be appointed as such;
(b) A person having special knowledge of the finances and accounts of the government;
(c) A person having wide experience in financial matters and administration;
(d) A person having special knowledge of economics,
(e) A person familiar with measures needed to augment the consolidated fund of a state to supplement the resources of the panchayats in the state.
Functions of the Finance Commission can be explicitly stated as:
(a) Distribution of net proceeds of taxes between Centre and the States, to be divided as per their respective contributions to the taxes.
(b) The principles which should govern the grants-in-aid of revenues to the states out of the consolidated fund of India;
(c) Work with the State Finance Commissions and suggest measures to augment the Consolidated Fund of the States so as to provide additional resources to Panchayats and Municipalities in the state.(added by 73rd and 74th Amendment Act)
The commission submits its report to the President and he lays down the report before the Parliament.
The recommendations of commission are only advisory and not binding on the Government.