The Union cabinet on Wednesday approved the Terms of Reference (TOR) for the sixteenth Finance Commission to recommend the tax distribution between the Union and the States of the net proceeds of taxes, on the measures needed to augment the resources of local bodies and to review the present arrangements on financing Disaster Management initiatives.
“The selection of chairman and members will happen soon and the detailed terms of reference will be issued later,” a senior official told ET.
The commission once constituted, will give its report by October 31, 2025.
The Finance Commission is a constitutional body that determines the method and formula for distributing tax proceeds among the Centre and states.
It suggests distribution of taxes and grants and works based on the terms of reference set by the finance ministry for a five-year period, after being approved by the centre.
The recommendation of the sixteenth Finance commission will be valid for five years, from April 1, 2026 to March 31, 2031.
The Fifteenth Finance Commission was constituted on November 27, 2017.
It made recommendations covering the period of six years and it’s approved recommendations are valid upto the financial year 2025-26.
“Normally the Finance Commission takes about two years to make their recommendations so it was important to approve the ToR,” Information and Broadcasting minister Anurag Singh Thakur told reporters after the cabinet meeting.
The centre constituted advance cell of the 16th FC was formed on November 21 to oversee the formal constitution of the Commission and had appointed Ritwik Pandey, a 1998 batch IAS officer of the Karnataka cadre, as an officer on special duty at the advance cell of the Finance Commission.
After that a working group was set up headed by Finance Secretary and Secretary (Expenditure) and comprising Secretary, Economic Affairs, Secretary Revenue, Secretary Financial Services, Chief Economic Adviser, Adviser, NITI Aayog and Additional Secretary (Budget) to assist in formulation of the Terms of Reference (ToRs).
During the consultative process, views and suggestions were sought from the State Governments and the Union Territories the ToRs.
