Updated: May 20, 2020
The Finance Commission is the creation of the Constitution. The federal character requires sound economic principles in the distribution of taxes between the Union and the States, and the grants from the Centre to the States. No permanent rules were made in the Constitution as social-economic changes might require a flexible scheme to the needs without creating any friction. The Constitution makers were guided by Canadian and Australian methods. This is achieved through the Finance Commission. The financial Commission Act of 1951 has made detailed provisions.
COMPOSITION AND QUALIFICATION
It consists of the Chairman and four other members, appointed by the president. Parliament has specified the qualifications of the members, and the manner of selections, in the Finance Commission Act. An ex-minister or ex- comptroller and Auditor General cannot hold office.
The First Commission was appointed in 1952. The commission’s tenure is 5 years generally. It may be constituted for less than 5 years, if the President so desires.
It is its duty to make a recommendation to the President as to-
1)- The distribution of the net proceeds of taxes divisible between the union and states. Etc- Income Tax;
2)- the Principle governing the grants-in-aid to the revenues of the State out of the consolidated Fund of India;
3)- The continuance or modifications of terms of agreement with the Government of India and Government of any state;
POWERS AND REPORT
A)-The commission has the power to determine its procedure and shall have additional powers as specified by the parliament.
B)- Report is submitted by the Commission to the President. It shall be laid before the parliament. The Report may contain an explanatory memorandum as to the action taken.