Report of the Fifteenth Finance Commission

The Finance Commission is a constitutional body formed by the President of India to give suggestions on centre-state financial relations. The 15th Finance Commission (Chairman: Mr. N. K. Singh) submitted final report with recommendations for the 2021-26 period was tabled in Parliament on February 1, 2021.  Key recommendations in the report for 2021-26 include:

Share of states in central taxes
The share of states in the central taxes for the 2021-26 period is recommended to be 41%.  This is less than the 42% share recommended by the 14th Finance Commission for 2015-20 period.  The adjustment of 1% is to provide for the newly formed union territories of Jammu and Kashmir, and Ladakh from the resources of the centre. 
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Criteria for devolution to state
The Finance Commission uses certain criteria when deciding the devolution to states.  The 15th Finance Commission used the following criteria while determining the share of states:

1. 45% for the income distance
2. 15% for the population in 2011
3. 15% for the area
4. 10% for forest and ecology
5. 12.5% for demographic performance, and 
6. 2.5% for tax effort.  

Demographic Performance criterion which has been introduced by the 15th Finance Commission.  The Demographic Performance criterion is to reward efforts made by states in controlling their population.
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1. Income distance: Income distance is the distance of a state’s income from the state with the highest income.  Income of a state has been computed as average per capita Gross State Domestic Product (GSDP) during the three-year period between 2016-17 and 2018-19.  A state with lower per capita income will have a higher share to maintain equity among states.
2. Demographic performance: The Terms of Reference of the Commission required it to use the population data of 2011 while making recommendations.  Accordingly, the Commission used 2011 population data for its recommendations. The demographic performance criterion has been used to reward efforts made by states in controlling their population.  States with a lower fertility ratio will be scored higher on this criterion. 
3. Forest and ecology: This criterion has been arrived at by calculating the share of the dense forest of each state in the total dense forest of all the states.
4. Tax and fiscal efforts: This criterion has been used to reward states with higher tax collection efficiency.  It is measured as the ratio of the average per capita own tax revenue and the average per capita state GDP during the three years between 2016-17 and 2018-19.

​About Finance Commission of India(FCI) 
Established          :  1951
Govt Body Type   :  Constitutional Body

The Government of India, with the approval President of India, ha constitutes  Finance Commission in pursuance of article 280 of the Constitution, read with the provisions of the Finance Commission Act, 1951