(1) The President shall, within two years from the commencement of this Constitution and thereafter at the expiration of every fifth year or at such 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 qualifications 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 —

 

(a) the distribution between the Union and the States 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;

 

(b) the principles which should govern the grantsin-aid of the revenues of the States out of the Consolidated Fund of India;

 

(bb) the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats in the State on the basis of the recommendations made by the Finance Commission of the State; 

 

(c) the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State;

 

(d) any other matter referred to the Commission by the President in the interests of sound finance.

 

(4) The Commission shall determine their procedure and shall have such powers in the performance of their functions as Parliament may by law confer on them.

Debate Summary

 

Draft Article 260, Draft Constitution of India 1948

(1) The President shall, at the expiration of five years from the commencement of this Constitution and thereafter at the expiration of every fifth year or at such other 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 qualifications 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-

(a) The distribution between the Union and the States 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;

(b) The principles which should govern the grants-in-aid to the States out of the revenues of India;

(c) The continuance or modification of the terms of any agreement entered into by the Union with any State for the time being specified in Part III of the First Schedule as respects the levy, collection and distribution of any tax or duty leviable by the Government of India in such State; and

(d) Any other matter referred to the Commission by the President in the interest of sound finance.

(4) The Commission shall determine their procedure and shall have such powers in the performance of their functions as Parliament may by law confer on them.

 

Draft Article 260 (Article 280, Constitution of India 1950) was discussed on 9 August 1949 and 10 August 1949. It empowered the President to, after 5 years from the commencement of the Constitution, constitute a Finance Commission every 5 years consisting of a Chairman and 4 other members. Parliament would determine the qualifications of Commission’s members and procedures. Draft Article 260 also laid down the duties of the Finance Commission.

 

The Chairman of the Drafting Committee proposed to amend the Draft Article to state that the President would be empowered after 2 years from the commencement of the Constitution to constitute a Finance Commission instead of 5 years. He also moved a minor amendment to change the term ‘revenues of India’ to ‘Consolidated Fund of India’. 

Most Members were in support of these amendments. The Assembly adopted these amendments.

Another Member moved a separate amendment to restrict the powers of the Finance Commission to alter the fixed percentages of distribution of revenue between the Union and States. Further, he did not want the Finance Commission to determine how much percentage of the excise duty should be allocated to States citing the example of the Australian Finance Commission. 

 

A Member opposed this amendment on the ground that the Finance Commission would merely make recommendations to the President and these recommendations are not binding on the President of India.The Chairman of the Drafting Committee also responded stating that the discretion of the President has not been altered by this Draft Article and the recommendations can substantiate the President’s decision when States question the allocation.The Assembly rejected this amendment restricting the powers of the Finance Commission.

 

The Draft Article, as amended, was adopted on 10 August 1949.

 

In 1992, Article 280 was amended to expand the duties of the Finance Commission – to make recommendations to the President on increasing funds in the Consolidated Fund of a State to supplement the resources of the Panchayats and Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State.