Government approves new finance panel to suggest sharing of federal taxes

India sets up a Finance Commission to suggest the formula for sharing of taxes between the federal and state governments, and make recommendations on public finances.

The federal cabinet has approved the so-called terms of reference for the 16th Finance Commission, Information and Broadcasting Minister Anurag Thakur said on Wednesday. Image Source: Reuters

The Indian government on Tuesday approved the setting up of a new Finance Commission that will recommend how federal taxes will be shared with states.

The federal cabinet has approved the so-called terms of reference for the 16th Finance Commission, Information and Broadcasting Minister Anurag Thakur said on Wednesday.

The government has not yet announced the composition of the commission or the detailed terms of reference.

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"Due process" will be followed for the appointment of the chair and members of the commission, minister Thakur told reporters.

Every five years, India sets up a Finance Commission to suggest the formula for sharing of taxes between the federal and state governments, and make recommendations on public finances.

Presently, India shares 42% of federal taxes with states.

The next Finance Commission will submit its report by October 2025 and its recommendations will be implemented from fiscal year 2026-27.

The panel will recommend grants given by the federal government to states, and suggest ways to shore up states' consolidated funds, among others, minister Thakur said.

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