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Q73 (IAS/2003) Polity & Governance › Constitutional & Statutory Bodies › Finance Commission of India Answer Verified

Consider the following statements: The function (S) of the Finance Commission is/are 1. to allow the withdrawal of money out of the Consolidated Fund of India. 2. to allocate between the States the shares of proceeds of taxes. 3. to consider applications for grants-in-aid from States. 4. to supervise and report on whether the Union and State governments are levying taxes in accordance with the budgetary provisions. Which of these statements is/are correct?

Result
Your answer: —  ·  Correct: B
Explanation

The Finance Commission’s remit is to recommend the distribution between the Union and the States of the net proceeds of taxes and the allocation between States of their respective shares, and to recommend principles and sums for grants‑in‑aid to States (i.e., payments out of the Consolidated Fund of India) — thus covering statement 2 and, in practice, the consideration and recommendation of grants to States (statement 3) [2]. It does not “allow” withdrawals from the Consolidated Fund (that is a constitutional/appropriation process), nor does it supervise or report on whether governments levy taxes in accordance with budgetary provisions (statement 4). Hence the correct choice is 2 and 3.

Sources

  1. [1] Indian Polity, M. Laxmikanth(7th ed.) > Chapter 46: Finance Commission > FUNCTIONS > p. 431
  2. [2] https://www.niti.gov.in/sites/default/files/2025-03/12th-Finance-Commision.pdf
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