Cabinet approves terms of reference for the 16th Finance Commission

The Union Cabinet has approved the terms of reference of the 16th Finance Commission. However, details on its members and Chairperson as well as exact terms of reference are expected to be approved at a later date.

“The members would be notified as soon as possible as they have to finish the report within two years from the date of appointment,” said Union Minister for Information and Broadcasting Anurag Singh Thakur on Wednesday.

The decision was approved by the Union Cabinet chaired by Prime Minister Narendra Modi on Tuesday evening.

The Commission would look into the devolution of taxes between the Centre and States for the five year period from April 1, 2026 to March 31, 2031, the minister said. To this end, the Commission would be expected to submit its report by October 2025.

“It takes about two years for the finance panel to submit its report,”Thakur noted, adding that this is done based on discussions with the Centre and the states.

The ToR also include determining the revenue to states and the increase in consolidated fund of states to increase the income of Gram Panchayats and on disaster management financing.

The Finance Commission, which is a Constitutionally mandated body under Article 280 of the Constitution, decides on the devolution of taxes between the Centre and the States for a five-year period. 

The Union Budget 2023-24 has also made an allocation of Rs 10 crore to the Finance Ministry for establishing offices attached to the Sixteenth Finance Commission.  The government has already initiated the process of setting up the Sixteenth Finance Commission. Earlier this month, Ritwik Pandey, a 1998-batch IAS officer of the Karnataka cadre who was Joint Secretary, Department of Revenue, Ministry of Finance, as Officer on Special Duty for Advance Cell of the finance panel.  The terms of reference of the panel as well as the members are likely to be announced soon. 

The Fifteenth Finance Commission, chaired by NK Singh, was set up in November 2017 with a remit for the period 2021-26. The finance panel had been given an extended mandate for a six year period due to the Covid 19 pandemic and an expansion of its terms of reference. The Commission was asked to submit two reports --- a first report for financial year 2020-21 and a final report for an extended period of 2021-22 to 2025-26.