The correct answer is option 3, which states that the Finance Commission is mainly concerned with recommending to the President about both the distribution of net proceeds of taxes between the Centre and the States, and the principles governing the grants-in-aid to be given to the States.

Option 1 refers to the allocation of tax revenues between the central government and the state governments. This is an important function of the Finance Commission as it ensures a fair and equitable distribution of resources.

Option 2 refers to the principles that guide the grants-in-aid provided to the states. These grants are financial assistance given by the central government to the state governments, and the Finance Commission plays a crucial role in determining the criteria and principles for granting this aid.

Therefore, the Finance Commission is responsible for both recommending the distribution of tax proceeds and guiding the grants-in-aid to the states, making option 3 the correct answer.