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Posted by on Feb 26, 2014 in Constitutional Bodies |

Finance Commission – Composition and Functions

The President shall constitute Finance Commission after expiry of every 5 yrs or at such earlier time as he considered necessary. Article 280 of the constitution deals with composition, functions and role of the Finance Commission.

Composition of Finance Commission

  • The Constitution provides that Finance Commission shall consist of a Chairman and four other members to be appointed by President. The Chairman or members are eligible for reappointment.
  • The Constitution authorizes Parliament to make provisions related to qualifications, conditions of service of members or powers of Finance Commission. So Parliament enacted Finance Commission Act in 1951 to determine provisions related to qualifications or disqualifications, conditions of service or miscellaneous powers to perform functions provided under constitution.
  • Qualifications – The Chairman shall have vast experience in Public affairs and other four members shall be selected among persons who a) have qualifications as par with a judge of HC, b) has special knowledge of Finance and Accounts of govt, c) have vast experience in financial matters and d) have special knowledge of economics.
  • Disqualifications – A member or Chairman is become disqualified if he a) is of unsound mind, b) is an undischarged solvent (bankrupt), c) is convicted of an offence and d) has such financial or other interest which is likely to affect prejudicially his functions as a member of the commission.


  • It shall be the duty of the Finance Commission to make recommendations to the President on following matters:-
    • The distribution between the Union and the States of the net proceeds of taxes and the allocation between the States of the respective shares of such net proceeds of taxes;
    • The principles which should govern the grants in aid of the revenues of the States out of the Consolidated Fund of India;
    • The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities and Panchayat in the State on the basis of the recommendations made by the Finance Commission of the State.

Any other matters referred to commission by President in the interests of sound finance.

  • The President shall cause every recommendation made by the Finance Commission under the provisions of this Constitution together with an explanatory memorandum as to the action taken thereon to be laid before each House of Parliament.

Status and Planning Commission

  • The role of Finance Commission is only advisory in nature and no recommendation of commission is binding on govt. This provision is criticized by experts and they added that the recommendations of Finance Commission shall not be undermined by govt unless there are compelling reasons to do so.
  • The Status of Finance Commission is diminished especially in area of Centre-State fiscal relations after emergence of Planning Commission (PC), a non constitutional and non statutory body.
  • Article 275 deals with Grants in aid from union to certain states to meet cost of developmental and welfare schemes. The emerging role of PC diminishes the role of Finance Commission in making grant in aid to states as practically these are made by recommendation of PC only because PC is formulate the five year plan which includes all policies and programmes.
  • The main functions of Finance Commission are now just in determining revenue gap in each state and providing for filling up the gap by a scheme of devolution.


  • Quasi Judicial Body – The Finance Commission shall have all powers of civil court under Code of Civil Procedure (1908) in matters of summoning & enforcing attendance and requisitioning any public record from any court of office. Also Finance Commission shall be deemed to be a civil court for purposes of sections 480 and 482 of the CrPC provided under Finance Commission Act.
  • Till now fourteen Finance Commission has been constituted. The 14th finance commission is constituted by President in 2013 and 14th Finance Commission shall submit its report by 31st October, 2014. Its recommendations will cover the five year period commencing from 1st April, 2015. The Chairman of 14th Finance Commission is Y.V.Ready, former governor of RBI.
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