Finance Commission is constitutional body. Its provisions are mentioned in Article 280 of Constitution. It is constituted by President every fifth year or earlier time as he considers. Finance Commission consists of Chairman and four members appointed by President.
The Finance commission recommends the measures and methods on how revenues need to be distributed between the centre and states.
Besides suggesting the mechanism to share tax revenues, the Commission also lays down the principles for giving out grant-in-aid to states and other local bodies. In the case of 14th Commission, these principles will apply for a five-year period beginning April 1, 2015 to 31st March 2020
It also addressing the imbalances that often arises between the taxation powers and expenditure responsibilities of the centre and the states respectively.It also has to ensure a sense of equality in public services across the states.
Former Governor Mr.Y.V.Reddy is the chairman of 14th Finance Commision.
The 14th finance commission recommended to increase the share of states in the centre’s tax revenue from the current 32 per cent to 42 per cent. This is indeed the single largest increase ever recommended by a Finance Commission.
The impact of recommendation of finance commission to central , The higher tax devolution will allow States greater autonomy in financing and designing schemes as per their needs and requirements,” says the report. Practically, it will give more power to states in determining how they spend this money.