Cabinet accepts terms of reference for 16th Finance Commission

Prime Minister Narendra Modi-led cabinet has accepted the terms of reference for the 16th Finance Commission (FC).

The recommendations of the 16th Finance Commission, if accepted by the government, would cover a 5-year period beginning from April 1, 2026.

The 15th Finance Commission was formed on November 27, 2017. It made recommendations through its interim and final reports for the period of 6 years beginning from 1st April, 2020 valid until FY(2025-26).

The terms of reference(ToR) for 16th FC:

The Finance Commission will make suggestions on following matters:

1. The allocation of the net proceeds of taxes between the Union and the states, and the allotment between the states of the respective shares of such proceeds.

2. The principles to govern grants-in-aid of state revenues from the consolidated fund of India, as well as the amount to be paid to the states via grants-in-aid of state revenues.

3. The required measures needed to inflate a state’s consolidated fund to support resources of the state’s panchayats and municipalities based on the directions given by the State Finance Commission.

The commission may examine the current arrangements to finance the disaster management initiatives, acknowledging the funds represented under the Disaster Management Act, 2005, and give suggestions accordingly. The commission will make its report available by 31st day of October 2025, covering a period of 5 years beginning on the 1st day of April, 2026.

The Finance Commission usually takes around 2 years to make suggestions.