The Union Finance Minister Nirmala Sitharaman stated in reply to a question raised in the Lok Sabha asking whether the Government is facing any problem regarding sharing of revenue among Centre and States in the absence of 16th Finance Commission; that the revenue sharing takes place as per recommendations of the present financial commission in tenure, the 15th FInancial Commission. In addition, it was added that, “The 15th Finance Commission award period is for six (6) years till 31.03.2026. Usually a Finance Commission takes two years to prepare its report. The award period of the 16th Finance Commission would commence from 1st April, 2026.
Therefore, there is no delay, due or undue, in constitution of the 16th FC”, addressing the allegation of delay in the constitution of the financial commission. “The award period of 15th Finance Commission is upto March 31, 2026. Hence, sharing of revenue among Centre and States upto March 31, 2026 is being done as per accepted recommendations of 15th Finance Commission. In so far as the revenue share of states is concerned, the same is determined by recommendations of the Finance Commission”, it was further clarified.
The Finance Commission is a Constitutionally mandated body that is at the center of fiscal federalism. Set up under Article 280 of the Constitution, its core responsibility is to evaluate the state of finances of the Union and State Governments, recommend the sharing of taxes between them, and lay down the principles determining the distribution of these taxes among States. Its working is characterized by extensive and intensive consultations with all levels of governments, thus strengthening the principle of cooperative federalism. Its recommendations are also geared towards improving the quality of public spending and promoting fiscal stability.
The first Finance Commission was set up in 1951 and there have been fifteen so far. Each of them has faced its own unique set of challenges. The Fifteenth Finance Commission was constituted on 27 November 2017 against the backdrop of the abolition of the Planning Commission (as also of the distinction between Plan and non-Plan expenditure) and the introduction of the goods and services tax (GST), which has fundamentally redefined federal fiscal relations.
The Terms of Reference of the current Commission have some distinctive features, including recommending monitorable performance criteria for important national flagship programmes and examining the possibility of setting up a permanent non-lapsable funding for India’s defense needs. The reorganization of the State of Jammu and Kashmir into two Union Territories – one of Jammu and Kashmir and one of Ladakh – presents a new dynamic. On the whole the Finance Commission faces new challenges in the process of the evolution of our federal polity. As an important Constitutional entity, the Commission is liable to balance competing claims and priorities among all three tiers of government in a credible manner.