Finance Commission of India was formed in the year 1951 under Article 280 of the Constitution of India
. The Commission was structured according to the world standards. The objective of forming the Finance Commission was to allocate resources of the revenue between the Union and the State Governments in India
Formation of Finance Commission of India
The detailed set up and of the Finance Commission has been provided in Article 280 of the Constitution of India. The Article states:
(1) The President shall, within two years from the commencement of this Constitution and thereafter and at the expiration of every fifth year or at such time earlier time as the President considers necessary, by order constitute a Finance Commission which shall consist of a Chairman and four other members to be appointed by the President.
(2) Parliament may by law determine the qualification which shall be requisite for appointment as members of the Commission and the manner in which they shall be selected.
(3) It shall be the duty of the Commission to make recommendations to the President as to the distribution of the net proceeds of taxes which are to be, or may be divided between them under this chapter and the allocation between the States of the respective shares of such proceeds. It is also the duty of the Finance Commission to define the financial relations between the Union and the State and it also caters to the purpose of devolution of non-plan revenue resources.
Composition of Finance Commission of India
The Finance Commission of India has a Chairman along with four other members and a Secretary. The Chairman is the person who heads the Commission and presides over its activities. The Indian Parliament
is authorised to determine by law the qualifications of the members of the Commission and method of their 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 Courts of India
, or have knowledge of finance, or have vast experience in financial matters and are in administration, or have knowledge of economics. All the appointments are made by the Indian President
. A member can be disqualified on the following grounds- when a member is found to be of unsound mind, is involved in a vile act or if his interests are likely to affect the functioning of the Commission.
The tenure of the office of the Member of the Finance Commission is specified by the President of India and in some cases the members are also re-appointed. The members shall give part time or whole time service to the Commission as scheduled by the President. The salary of the members of the Finance Commission is according to the provisions led down by the Constitution of India.
Functions of Finance Commission of India
Under the Constitution, the basis for sharing of divisible taxes by the Centre and the States and the principles governing grants-in-aid to the states have to be decided by the Commission every five years. The President can refer to the Commission any other matter in the interest of sound finance. The recommendations of the Commission together with an explanatory memorandum as to the action taken by the Government on them are laid before each house of Parliament. The Commission has to evaluate the increase in the Consolidated Fund of a state to affix the resources of the Panchayat in the state. It also has to evaluate the increase in the Consolidated Fund of a state to affix the resources of the Municipalities in the state.
Powers of Finance Commission of India
The Commission has been given adequate powers in the exercise of its function and within its area of activity. It has 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.