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Q. How is Finance Commission constituted ? What are its functions?

Ans. According to Article 280 of the Constitution, the President shall, within two years from the commencement of the Constitution and thereafter at the interval of every five years, constitute a Finance Commission, which shall consist of a Chairman and four other members to be appointed by the President. Parliament has the power to determine by law the qualifications of these members and the manner of their select ion. Accordingly, the four members are appointed from four different fields as given below—
(1) One member should be either a judge of a High Court or should be qualified to become a judge of High Court.
(2) One member should be a person who has special knowledge of government finance and accounts.
(3) One person having vast experience of financial administration and other such matters.
(4) One person having special. knowledge of economics.
The following are the main functions of the Finance Commission— It shall be the duty of the
Finance Commission to make recommendations to the President as to
(1) the distribution between the Union and the States of the proceeds of the taxes which are to be divided between them and the allocation between the States of the respective share of such proceeds;
(2) the principles which should govern the grants-in-aid of revenues of the States out of the Consolidated Fund of India;
(3) as provided by the 73rd Amendment Act, 1992, the measures needed to augment the Consolidated Fund of the States to supplement the resources of Panchayats in the States;
(4) as provided by the 74th Amendment Act, 1992, the measures needed to augment the Consolidated Fund of the States to supplement the resources of the Municipalities in the States; and
(5) any other matter referred to the commission by the President in the interest of sound finance.
In brief, the Finance Commission makes recommendations with respect to the allocation of funds between the Centre and the States. The Government of India considers the report of the Commission and is free not to accept any of the recommendations of the Commission.

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