The Union Cabinet on Tuesday discussed terms of reference (ToR) for the 16th Finance Commission and in-principle agreed on some of them, but it is yet to finalise the name of its chairperson and members, officials aware of the late-night development said, requesting anonymity.
The decisions of the Cabinet are expected to be announced tomorrow, they said. The five-year term of the 16th Finance Commission is expected from 2026-27, hence the government has plenty of time to appoint its members. The 15th Finance Commission (2021-26) was chaired by NK Singh.
The Finance Commission is constituted by the President under Article 280 of the Constitution, mainly to give its recommendations on distribution of tax revenues between the Union and the States and among the states themselves. Two distinctive features of the commission’s work involve redressing the vertical imbalances between the taxation powers and expenditure responsibilities of the centre and the states respectively and equalization of all public services across states. Like the 15th Finance Commission , the ToR of this commission are expected to be unique and wide ranging, an official said. The 15 FC was asked to recommend performance incentives for states in areas like power sector, adoption of the direct benefit transfer (DBT) of subsidies, and the solid waste management. Besides, its ToR also included a funding mechanism for the defence and the internal security.