Constitution Section 243I — Constitution of Finance Commission to review financial position
Part IX — THE PANCHAYATS
Constitutional
Summary
The Governor of a state must set up a Finance Commission within one year of the 73rd Amendment to the Constitution, and then every five years after that. This Commission reviews the financial situation of Panchayats (local village councils) and makes recommendations to the Governor on how to share state tax money with Panchayats, what taxes Panchayats can collect, and what grants they should receive from the state. The Commission also suggests ways to improve Panchayats' finances and can look into any other money-related matters the Governor asks about. The state legislature decides who can be on the Commission and how they work, and the Governor must present the Commission's recommendations and a note on what action was taken to the state legislature.
Official Text
(1) The Governor of a State shall, as soon as may be within one year from the commencement of the Constitution (Seventy-third Amendment) Act, 1992, and thereafter at the expiration of every fifth year, constitute a Finance Commission to review the financial position of the Panchayats and to make recommendations to the Governor as to—
(a) the principles which should govern—
(i) the distribution between the State and the Panchayats of the net proceeds of the taxes, duties, tolls and fees leviable by the State, which may be divided between them under this Part and the allocation between the Panchayats at all levels of their respective shares of such proceeds;
(ii) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Panchayats;
(iii) the grants-in-aid to the Panchayats from the Consolidated Fund of the State;
(b) the measures needed to improve the financial position of the Panchayats;
(c) any other matter referred to the Finance Commission by the Governor in the interests of sound finance of the Panchayats.
(2) The Legislature of a State may, by law, provide for the composition of the Commission, the qualifications which shall be requisite for appointment as members thereof and the manner in which they shall be selected.
(3) The Commission shall determine their procedure and shall have such powers in the performance of their functions as the Legislature of the State may, by law, confer on them.
(4) The Governor shall cause every recommendation made by the Commission under this article together with an explanatory memorandum as to the action taken thereon to be laid before the Legislature of the State.