Q1. Which body recommends the distribution of taxes between the Centre and States?
- (a) Planning Commission
- (b) Finance Commission
- (c) Parliament
- (d) NITI Aayog
Answer & solution
Answer: (b) Finance Commission
The Finance Commission is a constitutional body established under Article 280 of the Indian Constitution. Its primary function is to recommend the distribution of the net proceeds of taxes between the Centre and the States (vertical devolution) and also among the States themselves (horizontal devolution). It also recommends grants-in-aid to states and measures to improve the finances of states. The Finance Commission is constituted every five years (or earlier) by the President of India. The 16th Finance Commission was constituted in 2023 under Dr. Arvind Panagariya and covers the period 2026-31.
Option (a) Planning Commission — Incorrect: The Planning Commission was dissolved in 2014 and replaced by NITI Aayog; it was responsible for planning economic development, not recommending tax distribution.
Option (c) Parliament — Incorrect: Parliament enacts tax laws but does not recommend the distribution of taxes between Centre and States; that is the specific constitutional mandate of the Finance Commission.
Option (d) NITI Aayog — Incorrect: NITI Aayog is a policy think tank that replaced the Planning Commission in 2015; it does not have the constitutional mandate to recommend tax distribution between Centre and States.