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Sixteenth Finance Commission: Key Terms of Reference

The Union Cabinet has approved the Terms of Reference (ToR) for the Sixteenth Finance Commission.

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Why in News:

The Union Cabinet has approved the Terms of Reference (ToR) for the Sixteenth Finance Commission.

Major Terms of Reference:

Tax Distribution: Advising on the division of tax proceeds between the Union and States, as per the Constitution’s Chapter I, Part XII, and allocating shares among States.
Grants-in-Aid Principles: Establishing guidelines for grants-in-aid to States from India’s Consolidated Fund, particularly under Article 275 of the Constitution.
Support for Local Bodies: Proposing ways to augment State funds to enhance resources for Panchayats and Municipalities, based on the State Finance Commission’s recommendations.
Disaster Management Finance: Reviewing financial frameworks for Disaster Management, including assessing funds created under the Disaster Management Act, 2005, and suggesting improvements.

The Finance Commission is a constitutional entity, established under Article 280 of the Indian Constitution.
Its core responsibility is to recommend how financial resources should be distributed between the central and state governments.