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Finance Commission

The Finance Commission constituted by the President pursuant to clause (1) of article 280 of the Constitution.

It was formed to define the financial relations between the centre and the state. The Finance Commission Act of 1951 states the terms of qualification, appointment and disqualification, the term, eligibility and powers of the Finance Commission. As per the Constitution, the commission is appointed every five years and consists of a chairman and four other members.

Functions of Finance Commission
Functions of the Finance Commission can be explicitly stated as:
  • Distribution of net proceeds of taxes between Centre and the States, to be divided as per their respective contributions to the taxes.
  • Determine factors governing Grants-in Aid to the states and the magnitude of the same.
  • Work with the State Finance Commissions and suggest measures to augment the Consolidated Fund of the States so as to provide additional resources to Panchayats and Municipalities in the state.
Implementation of The Recommendation Of Finance Commission
The recommendation of the Finance Commission are implemented by an order of the President or by executive orders.

Powers of the Commission: The Finance Commission has the following powers-
  • The Commission shall have all the powers of the Civil Court as per the Code of Civil Procedure, 1908.
  • It can call any witness, or can ask for the production of any public record or document from any court or office.
  • It can ask any person to give information or document on matters as it may feel to be useful or relevant.
  • It can function as a civil court in discharging its duties.
Qualifications for appointment and the manner of selection:The Chairman of the Finance Commission is selected among persons who have had the experience of public affairs, and four other members are selected among persons who
  • Are, or have been, or are qualified as judges of High Court, or
  • Have knowledge of finance, or
  • Have vast experience in financial matters and are in administration, or
  • Have knowledge of economics

Term of Office of the members:Every member of the commission shall be in the office as specified by the President. He can also be reappointed, provided that he has already addressed a letter to the President for his resignation.

Conditions of service and salaries and allowance of members:
  • Each member should provide whole time or part time service to the Commission as the President with respect to each case might specify.
  • Each member shall receive salaries according to the provisions made by the central government.
A member may be disqualified if:
  • He is of unsound mind.
  • He is involved in a vile act.
  • If his interests are likely to affect the smooth functioning of the Commission.

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