Q1. Which body recommends the distribution of tax revenues between the Union and States?
- (a) NITI Aayog
- (b) Parliament
- (c) Finance Commission
- (d) Planning Commission
Answer & solution
Answer: (c) Finance Commission
The Finance Commission is the constitutional body that recommends the distribution of tax revenues between the Union and States. Constitutional basis: Article 280 of the Indian Constitution provides for the constitution of the Finance Commission; The President of India constitutes the Finance Commission every five years (or earlier if necessary); Composition: A Chairman and four other members, appointed by the President; Key functions of the Finance Commission: Recommends the distribution between the Union and States of the net proceeds of taxes (vertical devolution); Recommends the allocation among States of the respective shares of such proceeds (horizontal devolution); Recommends grants-in-aid to States in need of assistance; Reviews the finances of the Union and States and makes recommendations; The 16th Finance Commission (constituted in 2023 under Dr. Arvind Panagariya) submitted its report for the period 2026-31.
Option (a) NITI Aayog — Incorrect: NITI Aayog (National Institution for Transforming India) is a policy think-tank set up in 2015 to replace the Planning Commission; it provides strategic and technical advice to the government but does NOT have the constitutional mandate to recommend tax distribution between Centre and States.
Option (b) Parliament — Incorrect: Parliament legislates on tax laws and decides the Union budget, but it does NOT specifically recommend the formula for distributing tax revenues between the Union and States — that is the constitutional role of the Finance Commission under Article 280. The candidate selected this incorrect option.
Option (d) Planning Commission — Incorrect: The Planning Commission (dissolved in 2014, replaced by NITI Aayog) was responsible for planning economic development and allocating resources; it was NOT the body constitutionally mandated to recommend distribution of tax revenues between Union and States — that role belongs to the Finance Commission.