1. Generally, in India Finance Commission is appointed every five years-
(a) To determine the financial position of the States.
(b) To determine the financial position of the Central Government.
(c) To determine the financial resources of the Central Government.
(d) To determine the share of the States in the grants and revenues of the Central Government.
[U.P.U.D.A./L.D.A. (Pre) 2002]
Ans. (d) To determine the share of the States in the grants and revenues of the Central Government.
- The Constitution states that the Finance Commission is to be formed every five years, or if the President thinks it is necessary, earlier.
- Its main job is to suggest to the President how taxes should be shared between the Union and the States, and how it should be divided among the States.
- The first Finance Commission was created on November 22, 1951, with K.C. Neogy as its leader.
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2. Under which one of the following Articles is the formation of the Finance Commission laid down?
(a) Article 280
(b) Article 269
(c) Article 268
(d) Article 265
[B.P.S.C. (Pre) 2018]
Ans. (a) Article 280
- The Constitution of India states that the President of India can create a Finance Commission and provide suggestions on how taxes should be divided between the Union Government and the State Governments, and between the states themselves.
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3. Financial distribution between the Union and the States takes place on the basis of the recommendations of the –
(a) Finance Commission
(b) Inter-State Council
(c) Planning Commission
(d) Sarkaria Commission
[Uttarakhand P.C.S. (Pre) 2002]
Ans. (a) Finance Commission
- The President created the Finance Commission according to Article 280 of the Constitution.
- Its main job is to suggest how taxes can be shared between the Union and the States, and between the States.
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4. Finance is distributed between the Centre and the State on the recommendations of which of the following?
(a) Planning Commission
(b) Public Accounts Committee
(c) Finance Commission
(d) National Development Council
[U.P. Lower Sub. (Mains) 2013]
[U.P. Lower Sub. (Spl) (Pre) 2010]
Ans. (c) Finance Commission
- The President creates the Finance Commission according to article 280 of the Constitution, mainly to give advice on how to divide tax money between the Union and the States, and also between the individual States.
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5. Which one of the following authorities recommends the principles governing the grants-in-aid of the revenues to the States out of the Consolidated Fund of India?
(a) Finance Commission
(b) Inter-State Council
(c) Union Ministry of Finance
(d) Public Accounts Committee
[I.A.S. (Pre) 2002]
Ans. (a) Finance Commission
- The Finance Commission suggests rules for giving money from the Indian government to the states.
- They send their ideas to the President.
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6. Which of the following recommends the principles for sharing of revenues among the Union and the States?
(a) Finance Commission
(b) Inter-State Council
(c) Union Ministry of Finance
(d) Planning Commission
[Chhattisgarh P.C.S. (Pre) 2003]
Ans. (a) Finance Commission
- The Finance Commission’s job is to suggest how the Union and the States should share the money they get from taxes.
- The Inter-State Council helps States work together.
- The Planning Commission’s purpose was to decide how the Central and State governments should share resources.
- The Planning Commission has been replaced by ‘Niti Aayog’ (National Institution for Transforming India).
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7. Which one of the following institutions will lay down the basic principles for the distribution of the net proceeds of the taxes between the Union and States?
(a) Planning Commission
(b) National Development Council
(c) Finance Commission
(d) Union Ministry of Finance
[U.P.P.C.S. (Spl) (Mains) 2008]
Ans. (c) Finance Commission
- The Finance Commission helps keep the financial balance between the Union and States in India.
- It decides how much of the money made from taxes will go to the Union and how much will be shared among the States.
- It also decides how much each State will get from the taxes.
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8. Consider the following statements-
In India taxes on transactions in Stock-Exchanges and Futures Markets are –
1. Levied by Union.
2. Collected by the State Government.
Code :
(a) Only 1
(b) Only 2
(c) Both 1 and 2
(d) Neither 1 nor 2
[U.P.P.C.S. (Mains) 2006]
Ans. (a) Only 1
- The Seventh Schedule of the Constitution divides the power between the Union (national government) and the States.
- It has three lists: Union List, State List, and Concurrent List.
- The taxes on the stock and futures market are part of the Union List, but Article 270 of the Constitution says that these taxes will be collected by the Union but given to the States.
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9. Consider the following statements:
The function (s) of the Finance Commission is/are –
1. To allow the withdrawal of the money out of the Consolidated Fund of India.
2. To allocate among 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?
(a) Only 1
(b) 2 and 3
(c) 3 and 4
(d) 1, 2 and 4
[I.A.S. (Pre) 2003]
Ans. (b) 2 and 3
- The Finance Commission is responsible for deciding how much money from taxes should go to the Union and the States, and which principles should guide grants from the Consolidated Fund of India to the States.
- It also suggests ways to increase the money in the State’s Consolidated Fund for the development of local bodies.
- It might also do other things the President asks it to do for sound financial administration.
- The Parliament controls the money taken out of the Consolidated Fund of India, while the Finance Ministry makes sure taxes are collected according to the budget.
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10. The main functions of the Finance Commission are –
(a) To determine the part of States in central taxes and to determine the principles of financial aid given by the Centre to States.
(b) Financial control over States
(c) Financial control over Central
(d) None of the above
[U.P.P.C.S. (Pre) 1993]
Ans. (a) To determine the part of States in central taxes and to determine the principles of financial aid given by the Centre to States.
- The President sets up the Finance Commission as stated in the Constitution, mainly to decide how tax money should be split between the Union (central government) and the States, and between the States themselves.
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11. The Finance Commission is primarily concerned with recommending to the President about –
(a) The principle governing grants-in-aid to be given to the States.
(b) Distributing the net proceeds of the taxes between the Centre and the States.
(c) Neither (a) nor (b)
(d) Both (a) and (b)
[U.P.P.C.S. (Pre) 2006]
Ans. (d) Both (a) and (b)
- The President sets up the Finance Commission as stated in the Constitution, mainly to decide how tax money should be split between the Union (central government) and the States, and between the States themselves.
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12. With reference to the Finance Commission of India, which of the following statements is correct?
(a) It encourages the inflow of foreign capital for infrastructure development.
(b) It facilitates the proper distribution of finances among the Public Sector Undertakings.
(c) It ensures transparency in financial administration.
(d) None of the statements (a), (b) and (c) given above is
correct in this context.
[I.A.S. (Pre) 2011]
Ans. (d) None of the statements (a), (b) and (c) given above is
correct in this context.
- The Constitution of India states that the Finance Commission of India should give advice regarding the distribution of federal taxes between the Union and the States, the aid in the revenue of the States, and any other topics suggested by the President for the betterment of the economy.
- Additionally, it should suggest measures to the State Finance Commission for increasing the consolidated fund of a state to support Panchayats and municipalities in the state.
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13. Which one of the following is not a function of the Finance Commission in India?
(a) Devolution of Income Tax
(b) Devolution of Excise Duty
(c) Award of grants-in-aid
(d) Devolution of Trade Tax
[U.P.P.C.S. (Mains) 2004]
Ans. (d) Devolution of Trade Tax
- The Federal government collects Income Tax and Excise Tax (now part of GST).
- The Finance Commission decides how much of this tax should be given to the Union and the states.
- The Finance Commission also decides how much money the states should get from the federal government.
- The states collect and keep Trade Tax (now part of GST). This tax is not related to the Finance Commission’s decisions.
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14. Federal Finance Commission in India relates to –
(a) Finances among the States
(b) Finances between States and the Centre
(c) Finances between the Centre and Local Self Governments
(d) None of these
[43rd B.P.S.C. (Pre) 1999]
Ans. (b) Finances between States and the Centre
- The Federal Finance Commission in India is responsible for managing money between the national government and the individual states.
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15. The main agency to resolve the fiscal disputes between the Centre and States is –
(a) Supreme Court
(b) Law Minister
(c) Finance Minister
(d) Finance Commission
[U.P.P.C.S. (Pre) 1995]
Ans. (a) Supreme Court
- The Supreme Court is the main body responsible for settling financial disagreements between the central government and the states.
- This is done under Article 131 of the Constitution of India.
- The main role of the Finance Commission is to suggest how taxes should be shared between the central government and the states.
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16. Who recommends the distribution of finance between the Union and the States?
(a) Ministry of Finance
(b) Finance Commission
(c) Reserve Bank of India
(d) NABARD
[U.P.U.D.A./L.D.A. (Pre) 2006]
Ans. (b) Finance Commission
- The President creates the Finance Commission as stated in the Constitution.
- Its main purpose is to suggest how tax money should be split between the Union and the States, as well as between the different States.
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17. Consider the following statements and select the correct answer from the code given below:
Assertion (A): The State Finance Commission is a Constitutional body.
Reason (R): The Union Finance Commission cannot recommend financial assistance to Panchayats.
Code :
(a) Both (A) and (R) are true and (R) is the correct explanation of (A)
(b) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(c) (A) is true, but (R) is false.
(d) (A) is false, but (R) is true.
[U.P.P.C.S. (Pre) (Re. Exam) 2015]
Ans. (c) (A) is true, but (R) is false.
- The Constitution (Seventy-Third Amendment) Act, 1992 states that the Governor of a State must set up a Finance Commission once a year and then every five years afterward.
- This Finance Commission will look at the financial situation of the Panchayats and give recommendations to the Governor.
- Because of this, the State Finance Commission is a body set up in the Constitution.
- Article 280(3) (bb) says that the Finance Commission must make recommendations for the Panchayats and Municipalities based on the recommendations of the State Finance Commission.
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18. Who recommends to the Governor the principles which should govern the distribution between the state and the panchayats of the net proceeds of the taxes and fees leviable by the State, which may be divided between them?
(a) Chief Minister
(b) Finance Minister of the State
(c) State Finance Commission
(d) Zilla Parishad
[Chhattisgarh P.C.S. (Pre) 2019]
Ans. (c) State Finance Commission
- Articles 243-I and 243-Y state that the State Finance Commission must suggest how the money from taxes, duties, tolls, and fees collected by the government should be divided between the state and the panchayats and municipalities.
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19. The Provisions regarding the division of taxes between the Union and the States –
(a) Can be suspended during a Financial Emergency.
(b) Can be suspended during National Emergency
(c) Cannot be suspended under any circumstances.
(d) Can be suspended only with the consent of a majority of the State Legislatures.
[Chhattisgarh P.C.S. (Pre) 2011]
Ans. (b) Can be suspended during National Emergency
- The President can temporarily change the rules that decide how taxes are shared between the Union and the States during a national emergency, as long as they make the changes that the Constitution of India (Article 354(1)) says they should.
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20. Who was the Chairman of the Twelfth Finance Commission?
(a) A.M. Khusro
(b) K.C. Pant
(c) Montek Singh
(d) C. Rangarajan
[Chhattisgarh P.S.C. (Pre) 2005]
Ans. (d) C. Rangarajan
- The Constitution of India requires that a new Finance Commission is formed every five years.
- So far, fifteen Finance Commissions have been created. The 12th Commission, headed by Dr. C. Rangarajan, was in charge from 2005 to 2010.
- The Commission consists of four members appointed by the President of India, plus the Chairman.
- The 13th Commission, headed by Vijay Kelkar, reported in 2010, and the 14th Commission, headed by Dr. Y.V. Reddy, reported in 2014.
- All of the Commission’s recommendations must be presented to both houses of Parliament.
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21. Who was the Chairman of the 13th Finance Commission?
(a) Indira Rajaraman
(b) C. Rangarajan
(c) Vijay Kelkar
(d) None of the above
[U.P.P.C.S.(Pre) 2012]
Ans. (c) Vijay Kelkar
- The President creates the Finance Commission as stated in the Constitution.
- Its main purpose is to suggest how tax money should be split between the Union and the States, as well as between the different States.
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22. Who among the following was the Chairman of the 14th Finance Commission?
(a) Shanta Kumar
(b) C. Rangarajan
(c) Y. V. Reddy
(d) None of the above
[U.P.P.C.S. (Pre) 2016]
Ans. (c) Y. V. Reddy
- The President created the Fourteenth Finance Commission (FC-XIV) on 2 January 2013 according to Article 280 of the Constitution.
- Dr. Y. V. Reddy was chosen to be the leader of the Commission and to make suggestions for the 2015-20 time period.
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23. Who has been nominated as the chairman of the 15th Finance Commission?
(a) N.K. Singh
(b) Shashikant Das
(c) Ashoka Lavasa
(d) Ratan Watal
[U.P.P.S.C. (GIC) 2017]
Ans. (a) N.K. Singh
- In November 2017, the President established the 15th Finance Commission in line with Article 280.
- N.K. Singh was selected to be the leader of this commission.
- The commission was supposed to be in place from 2020 to 2025, but they presented two reports – one for 2020-21 and the other for 2021-26.
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24. Who of the following shall cause every recommendation made by the Finance Commission to be laid before each House of the Parliament?
(a) The President of India
(b) The Speaker of Lok Sabha
(c) The Prime Minister of India
(d) The Union Finance Minister
[I.A.S. (Pre) 2010]
Ans. (a) The President of India
- The President created the Fourteenth Finance Commission (FC-XIV) on 2 January 2013 according to Article 280 of the Constitution.
- Dr. Y. V. Reddy was chosen to be the leader of the Commission and to make suggestions for the 2015-20 time period.
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25. The Finance Commission is constituted after every –
(a) 3 years
(b) 2 years
(c) 5 years
(d) 4 years
[U.P.P.C.S. (Mains) 2008]
Ans. (c) 5 years
- The constitution states that the commission needs to be put together every five years, and it should have one leader and four other people in it.
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26. The Finance Commission is constituted for a period of–
(a) 4 years
(b) 5 years
(c) 7 years
(d) 10 years
[U.P.P.C.S (Mains) 2011]
[U.P.P.C.S. (Mains) 2010]
Ans. (b) 5 years
- The law states that the commission must be set up every five years, and includes one leader and four other people.
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27. Which one of the following statements about a State Finance Commission is true?
(a) It is an Informal body.
(b) It is a Constitutional body.
(c) It is an Administrative body.
(d) None of the above
[U.P.P.C.S. (Pre) 2015]
Ans. (b) It is a Constitutional body.
- The State Finance Commission is a part of the Constitution set up by the Governor according to Article 243(I).
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28. The State Finance Commission is a –
(a) Legal body
(b) Non-statutory body
(c) Constitutional body
(d) None of the above
[U.P.P.C.S. (Pre) 2016]
Ans. (c) Constitutional body
- The State Finance Commission is an organization set up by the 73rd Constitutional Amendment Act of 1992 in every state in India according to Article 280.
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29. After the commencement of the Constitution how many Finance Commissions have been constituted?
(a) 10
(b) 8
(c) 9
(d) 12
[M.P.P.C.S. (Pre) 1999]
Ans. (*)
- In November 2017, the Indian government established the 15th Finance Commission, led by N.K. Singh.
- The 15th Finance Commission produced two reports, one with recommendations for the 2020-21 financial year and the other for 2021-26.
- Before this, the 14th Finance Commission was set up in January 2013, with Y.V. Reddy as its Chairman.
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30. The Finance Commission consists of a Chairman and
(a) Seven other member
(b) Five other members
(c) Four other members
(d) Such other members as may be decided by the
President from time to time
[U.P.P.C.S. (Spl) (Mains) 2008]
Ans. (c) Four other members
- The President of India appoints 4 people (besides the Chairperson) to be part of the Finance Commission, according to the rules in Article 280(1) of the Constitution.
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31. Given below are two statements one is labeled as Assertion (A) and the other as Reason (R):
Assertion (A): The President of India determines the qualifications of the Chairman and Members of the Finance Commission.
Reason (R): The Chairman and members are appointed by the President of India.
Select the correct answer using the codes given below.
Codes:
(a) Both (A) and (R) are true and (R) is the correct explanation of (A)
(b) Both (A) and (R) are true, but (R) is not the correct explanation of (A)
(c) (A) is true, but (R) is false
(d) (A) is false, but (R) is true
[U.P.P.C.S. (Pre) 2021]
Ans. (d) (A) is false, but (R) is true
- The President appoints the Finance Commission according to Article 280 of the Constitution.
- The Finance Commission (Miscellaneous Provisions) Act and The Finance Commission (Salaries & Allowances) Rules state that the Chairman of the Commission must have experience in public affairs, and the four other members must fit one of the following categories: a Judge of a High Court; special knowledge in finances and accounts of Government; wide experience in financial matters and administration; or special knowledge of economics.
- The Parliament sets the qualifications and selection process for members of the Commission.
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32. In the Indian Fiscal federal system resources are allocated from the centre to the states, which of the following is not a means of resource allocation at present?
(a) Grant-in-aid
(b) Centrally sponsored schemes
(c) Transfer for plan implementation under the Gadgil formula
(d) Tax sharing
[Jharkhand P.C.S. (Pre) 2021]
Ans. (c) Transfer for plan implementation under Gadgil formula
- In India, money usually flows from the central government to the states.
- The Gadgil formula is not currently used to divide resources. According to Article 280, the Finance Commission is responsible for advising the president on how to share the money from taxes between the union and states.
- Centrally sponsored schemes and grants-in-aid are also ways of sending money from the centre to the states.
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