Article 280 of Constitution of India – Finance Commission of India

Article 280 of Constitution of India deals with establishes the Finance Commission of India. This provision mandates the President to constitute a Finance Commission every five years or at such earlier time as deemed necessary. The commission’s primary role is to recommend the distribution of net proceeds of taxes between the Union and the States, ensuring a balanced economic and financial administration. This mechanism is crucial for maintaining fiscal federalism in India, facilitating equitable financial relations between the central government and the states, and ensuring a fair allocation of resources to meet the developmental needs across the nation.

Original Text of Article 280 of Constitution of India:

(1) The President shall, within two years from the commencement of this Constitution and thereafter at the expiration of every fifth year or at such earlier time as the President considers necessary, by order constitute a Finance Commission which shall consist of a Chairman and four other members to be appointed by the President.

(2) Parliament may by law determine the qualifications which shall be requisite for appointment as members of the Commission and the manner in which they shall be selected.

(3) It shall be the duty of the Commission to make recommendations to the President as to—

(a) the distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them under this Chapter and the allocation between the States of the respective shares of such proceeds;

(b) the principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India;

(bb) the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats in the State on the basis of the recommendations made by the Finance Commission of the State;]

(c) the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State;]

(d)] any other matter referred to the Commission by the President in the interests of sound finance.

(4) The Commission shall determine their procedure and shall have such powers in the performance of their functions as Parliament may by law confer on them.

Explanation of Article 280 of Constitution of India

Article 280 of Indian Constitution of India provides for a Finance Commission, a quasi-judicial body that maintains the fiscal horizontal and vertical balance in federalism.

Structure of the Finance Commission

The Constitution empowers the President of India to constitute a finance commission every five years. The Finance Commission comprises the Chairman and four other members.

• They are all appointed by the This is done with the aid and advice of the government, which means the government has effective control over the appointment of the Finance Commission.
• They remain in office for such a period as mentioned by the President in his order. They are also eligible for reappointment.

As per the Constitution, the Parliament is authorized to ascertain the qualifications of the Commission’s members and their manner of selection. Thus, the Finance Commission (Miscellaneous Provisions) Act 1951 was passed by the Parliament. Accordingly, the Parliament has mentioned the following qualifications of the Chairman (shall have experience in public Affairs) and other members of the Commission should be selected from amongst the following:

1. A judge of HC or someone qualified to be appointed as one.
2. A person with specialized knowledge of finance & accounts of the government.
3. A person with wide experience in financial matters and in administration.
4. A person with special knowledge of economics.

Functions of the Finance Commission

The Finance Commission makes the following recommendations to the President of India:

1. The net proceeds of taxes that must be shared between the states and the Centre.
2. The principles under which the grants-in-aid to the states should be given by the Centre.
3. Measures required to augment the consolidated fund of a state to supplement the panchayats and the municipalities’ resources in the State based on the recommendations issued by the State Finance Commission (SFC).
4. Any other issue that the President refers to in the interest of sound finance. Till 1960, the Commission also recommended grants for Odisha, Assam, Bihar and West Bengal in lieu of assignment of any share of net proceeds from each year’s export tariff on jute and jute products. These grants were supposed to be given for a temporary period of ten years from the commencement of the Constitution.

Submission of Report –

• The President receives the Commission’s report.
• He presents it to both the Houses of Parliament together with an explanatory memorandum as to the action taken on its recommendations.

15^th Finance Commission

1. K. Singh chaired the 15^th Finance Commission. The Commission was required to submit the following two reports:
2. The first report was tabled in Parliament in February 2020, which consisted of recommendations for the financial year 2020-21.
3. The final report was tabled in Parliament on February 1, 2021, with recommendations for the 2021-26 periods.

Share of states in central taxes

The share of states in the central taxes was recommended to be 41% between 2021 and 2026. Additionally, 1% is to provide to the newly formed UTs of Jammu & Kashmir and Ladakh from the resources of the Centre.

Criteria for Horizontal devolution

The following table shows the criteria used by the 15^th Finance Commission to determine each State’s share in central taxes and their respective weight assigned:

Questions related to Article 280 of Constitution of India

For Further Reference:

• Read The Constitution of India

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