Context:

The 15th FC has presented its report for the period 2021-26.

About:

• The Commission determines the method and formula for distributing the tax proceeds between the Centre and states.
• The Finance Commission has the following functions or duties:
  • The Commission makes recommendations to the President of India on the distribution of tax proceeds between the Union and the States and the share of each state.
  • The Commission also decides the principles that govern the payment of grants-in-aid to states from the Consolidated Fund of India.
  • The President of India can also refer any other matter to the Finance Commission in the interest of building a sound financial system.

Key Highlights:

• The Finance Commission is constituted by the President under Article 280 of the Constitution.
• The formula used for horizontal tax distribution:
• It reduced the vertical distribution between centre and state from 42% to 41% because Jammu and Kashmir is no longer state, and it will be funded via the Centre.
• For security-related expenditure 15th FC has recommended:
  • Setting up of a non-lapsable defence fund
  • Levy of aces
  • The monetisation of surplus land and other assets
  • Tax-free defence bonds
  • Utilising proceeds of disinvestment of defence public sector undertakings.

Reports of Finance Commission

• Under Article 281 of the Constitution, the President of India is required to cause laying of the Finance Commission report before each House of Parliament along with an explanatory note and the action taken by the government on the Commission’s recommendations.