The government on Wednesday said the 16th Finance Commission will recommend measures to provide adequate resources to panchayats and municipalities and disaster management besides the distribution of tax revenues between the Union and the states.
The Terms of Reference of the 16th Finance Commission was approved by the Cabinet on Tuesday evening, with its recommendations taking effect from April 1, 2026.
The commission would submit its report for the five years (2026–27 to 2030–31) to the President by October 31, 2025, an official statement said.
Besides tax devolution and states’ revenue augmentation measures, the commission would review the present arrangements for financing disaster management initiatives concerning the funds constituted under the Disaster Management Act, 2005.
The names of the chairperson and members of the 16th Finance Commission would be finalised soon, an official said.
The Terms of Reference (ToR) for the 16th Finance Commission will be notified in due course.
The commission shall make recommendations in matters including the distribution between the Union and states of net proceeds of taxes which are to be or may be, divided between them and the allocation between states of the respective shares of such proceeds.
The commission would advise on the principles which should govern the grants-in-aid of revenues of states out of the Consolidated Fund of India and the sums to be paid to states by way of grants-in-aid of their revenues.
It would also suggest measures needed to augment the consolidated fund of a state to supplement the resources of panchayats and municipalities in the state.
The Finance Commission is a constitutional body that gives suggestions on centre-state financial relations.
The erstwhile 15th Finance Commission under NK Singh had recommended that states be given 41 per cent of the divisible tax pool of the Centre during the five years 2021–22 to 2025–26, which is at the same level as was recommended by the 14th Finance Commission.
As per the 15th Finance Commission, Gross Tax Revenue (GTR) for the 5 years is expected to be Rs 135.2 lakh crore. Out of that, the divisible pool (after deducting cess and surcharges and the cost of collection) is estimated to be Rs 103 lakh crore.