Government to set up 15th Finance Commission

NEWDELHI: The Union Cabinet on Wednesday approved setting up of the 15th Finance Commission that will decide the distribution of tax proceeds among the centre, states and local bodies.

The Finance Commission is set up every five years and the government had allocated ₹10 crore in the 2017-18 Budget for the Finance Commission .

Finance minister Arun Jaitley said it usually takes two years for the finance commission to finalise its recommendations. “Now, the officials of the 15th Finance Commission will be appointed,” he said.

“The terms of reference of the 15th Finance Commission will be notified in due course of time,” a Cabinet statement said.

The recommendations of the previous 14th Finance Commission, chaired by former Reserve Bank of India (RBI) governor YV Reddy, are valid from 2015 to 2020. The recommendations of the 15th Finance Commission will be implemented for the period starting April 1, 2020 to March 31, 2025.

Usually, a finance commission is set up two years before the end of the period for which it sets rules for devolution of taxes. The Cabinet of the previous UPA government had cleared establishing the Finance Commission in October 2012 and appointed Reddy as its chairman in January 2013. The Commission submitted its report in February 2015 to the NDA government.

The Finance Commission is considered to have fundamentally reset the Centre-state fiscal relationship by raising the share of states in net Central taxes to 42% from 32% after ending discretionary resource transfers from the Union to the states.