Significant Development: Cabinet Approval for 16th Finance Commission’s Terms of Reference

Cabinet Approves Terms of Reference for 16th Finance Commission

In a recent Cabinet meeting led by Prime Minister Narendra Modi, the Terms of Reference for the 16th Finance Commission were officially sanctioned. Information and Broadcasting Minister Anurag Thakur shared the details of this decision, highlighting key aspects of the commission’s mandate.

According to Minister Thakur, the 16th Finance Commission is mandated to present its report by October 2025. The recommendations formulated by this commission are slated for implementation from the commencement of the new financial year, starting April 1, 2026.

The Information and Broadcasting Minister elaborated on the Terms of Reference, emphasizing the determination of the division of tax revenue between the Central and State Governments. Additionally, the allocation of grants to states and strategies for augmenting the revenue of municipalities and panchayats are integral components of the commission’s responsibilities.

The report submitted by the 16th Finance Commission will be applicable for the period spanning April 1, 2026, to March 31, 2031. It is noteworthy that the 15th Finance Commission, chaired by NK Singh, had previously fixed the states’ share in tax income at 42 percent, a continuation from the 14th Finance Commission, which was accepted by the Central Government.

The Finance Commission, established under Article 280 of the Constitution, plays a crucial role in the distribution of tax revenue and evaluating the financial positions of both Central and State Governments. The commission also recommends principles for tax distribution among states. Previous recommendations from the 15th Finance Commission included provisions for additional state loans based on fiscal deficit, debt reduction for both the Center and states, and reforms in the power sector.

While the Central Government has disclosed the Terms of Reference for the 16th Finance Commission, the announcement of the Chairman and members is anticipated in the near future. The Finance Commission is allotted a two-year timeframe for submitting its recommendations.