It recommends a devolution of ₹8,55,176 cr. to States for 2020-21
The 15th Finance Commission on Monday submitted to Prime Minister Narendra Modi its report on the ratio in which tax is to be divided between the Centre and states over the next five years. The report titled ‘Finance Commission in COVID Times” will be submitted to Finance Minister Nirmala Sitharaman on Tuesday. The Commission is a constitutional body that gives suggestions on Centre-State financial relations.
The Commission submitted two reports — the first report consisted of recommendations for the financial year 2020-21 and the final with recommendations for 2021-26.
While the previous Commission had recommended States be given 42% of all taxes, the 15th Finance Commission had for 2020-21 recommended a devolution of ₹8,55,176 crore, which is 41% of the divisible pool of taxes.
The recommendations of the 15th Finance Commission for 2021-22 to 2025-26 have not been disclosed as it has not been tabled in Parliament.
The 14th Finance Commission had increased the States’ share by 10 percentage points to 42% and it remains to be seen what its successor would do considering the Centre is hard-pressed for funds at a time when it is looking to boost the economy through expenditure.
The Commission was asked to give its recommendations on wide-ranging issues.
Apart from the vertical and horizontal tax devolution, local government grants, disaster management grant, it was also asked to examine and recommend performance incentives for States in many areas like power sector, adoption of direct benefit transfer, solid waste management etc.
The Commission was also asked to examine whether a separate mechanism for funding of defence and internal security ought to be set up and if so how such a mechanism could be operationalised.