Daily News Analysis » Sixteenth Finance Commission: Key Terms of Reference

Sixteenth Finance Commission: Key Terms of Reference

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.