The Indian government has accepted the ToR of the 16th Finance Commission, which would propose tax devolution ratios and disaster management policies for five years. The commission will examine current arrangements, tax devolution, and state revenue growth.
The Indian government has approved the 16th Finance Commission’s “Terms of Reference” (ToR) for Centre-state tax devolution. Starting April 1, 2026, it will assess disaster management program finance for five years. An official release states that the panel will report to the President by October 31, 2025, for the five-year period (2026-27 to 2030-31).
The commission will review disaster management program funding, including 2005 Disaster Management Act funds, tax devolution, and state revenue augmentation. “The Union Cabinet, chaired by Narendra Modi, accepted the Sixteenth Finance Commission Terms of Reference.”The recommendations of the 16th Finance Commission, if accepted by the government, would cover a five-year period beginning April 1, 2026,” said the release.
The official said the Cabinet met on Tuesday and would soon name the 16th Finance Commission head and members. Due to be announced is the 16th Finance Commission’s Terms of Reference.
The Commission will advise on key topics.
The commission will recommend distributing net tax proceeds between the Union and states and allocating proportionate shares to states.
The commission will suggest the principles and amounts of state grants-in-aid from the Consolidated Fund of India. It will also suggest ways to boost a state’s consolidated fund to help municipalities and panchayats.
“The commission may review the present arrangements on financing disaster management initiatives, with reference to the funds constituted under the Disaster Management Act, 2005, and make appropriate recommendations thereon,” the statement added to it.
Constitutionally, the Finance Commission advises on center-state finances.
NK Singh’s 15th Finance Commission recommended that states receive 41% of the Centre’s divisible tax pool from 2021-22 to 2025-26, matching the 14th Finance Commission’s recommendation.
The 15th Finance Commission estimates Rs 135.2 lakh crore in GTR over the next five years. The divisible pool is expected to reach Rs 103 lakh crore after cess, surcharges, and collection costs.
Conclusion
The 16th Finance Commission, whose terms of reference were authorized by the Indian government, will recommend the tax devolution ratio between the Centre and states and evaluate disaster management funding for five years starting April 1, 2026. The commission will examine disaster relief funding, tax devolution, and state revenue augmentation. The commission will also suggest reducing state grants-in-aid of Consolidated Fund of India revenues and state distributions. It will also suggest increasing a state’s consolidated fund to support municipal and panchayat resources. The commission may assess disaster management funding using 2005 Disaster Management Act monies and offer recommendations. Constitutionally, the Finance Commission advises on center-state finances. NK Singh’s 15th Finance Commission suggested 41% of the Centre’s divisible revenue pool for states from 2021-22 to 2025-26.
