The Finance Commission’s recommendations would cover a five-year period commencing April 1, 2026; Union Cabinet approves terms of reference for panel including recommending formula for sharing revenues between Centre and States
The Union Cabinet on Wednesday approved the terms of reference (ToR) for the Sixteenth Finance Commission, which will recommend the formula for sharing revenues between the Centre and the States for the five-year period beginning on April 1, 2026.
The government has set a deadline of October 31, 2025, for the panel to submit its recommendations, the government said in a statement.
Apart from the key recommendation on distribution of net proceeds of taxes between the Centre and States and allocation among States of the respective share of such proceeds, the panel will also prescribe measures needed to augment the Consolidated Fund of a State to supplement resources of the panchayats and local bodies on the basis of recommendations made by the respective State Finance Commissions.
Under the ToR, the panel will recommend principles that should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India and the sums to be paid to the States by way of grants-in-aid of their revenues. Also, it may review the existing arrangements on financing Disaster Management initiatives and make appropriate recommendations.
The government had established an Advance Cell in the Finance Ministry on November 21, 2022, to oversee the preliminary work pending formal constitution of the panel.
Subsequently, a Working Group headed by Finance Secretary and Secretary (Expenditure) and comprising several senior officials was set up to assist in the formulation of the ToRs. As part of the consultative process, views and suggestions were sought from the State governments and Union Territories (with legislature) on the ToRs and duly deliberated by the group, the government said.
