Finance Commission 1

Finance Commission
The Finance Commission is constituted by the President as a quasi-judicial body under article 280 of the Constitution, mainly to give its recommendations on distribution of tax revenues between the Union and the States and amongst the States themselves. Two distinctive features of the Commission’s work involve redressing the vertical imbalances between the taxation powers and expenditure responsibilities of the centre and the States respectively and equalization of all public services across the States.

Composition
      The Finance Commission is constituted by the President every fifth year or at such earlier time as he considers necessary. It consists of a chairman and four other members. They hold office for such period as specified by the president in his order and are eligible for reappointment.
      The Constitution authorises the Parliament to determine the qualifications of members of the commission and the manner in which they should be selected. Accordingly, the Parliament has specified the qualifications of the chairman and other members of the commission. The Chairman should be a person having experience in public affairs; and the four other members should be selected from amongst the following   
1. A judge of high court or one qualified to be appointed as one
2. A person who has specialised knowledge of finance and accounts of the government
3. A person who has wide experience in financial matters and in administration
4. A person who has special knowledge of economics.


Functions
It is the duty of the Commission to make recommendations to the President as to   
      The distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them and the allocation between the States of the respective shares of such proceeds;
      The principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India;

      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;
      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;
      Any other matter referred to the Commission by the President in the interests of sound finance.
      The Commission determines its procedure and has such powers in the performance of its functions as Parliament may by law confer on them.

Recommendations of FC
The recommendations are presented to the President in the FC report and the President causes the same to be tabled in the Parliament. They are not binding on the Government but are conventionally accepted by the Government.

The recommendations of the Finance Commission are implemented as under      -
      Those to be implemented by an order of the President       The recommendations relating to distribution of Union Taxes and Duties and Grants-in-aid fall in this category.
      Those to be implemented by executive orders       The recommendations in respect of sharing of Profit, Debt Relief, Mode of Central Assistance, etc. are implemented by executive orders.


      the need for insulating the pricing of public utility services like drinking water, irrigation, power and public transport from policy fluctuations through statutory provisions;
      the need to balance management of ecology, environment and climate change consistent with sustainable economic development; and
      the impact of the proposed Goods and Services Tax on the finances of Centre and States and the mechanism for compensation in case of any revenue loss