What is the Finance Commission report? What it means for Centre-state tax sharing
The 16th Finance Commission, chaired by former Niti Aayog vice-chairman Arvind Panagariya, was constituted on December 31, 2023.
The 16th Finance Commission, chaired by former Niti Aayog vice-chairman Arvind Panagariya, was constituted on December 31, 2023.
The 16th Finance Commission, chaired by former Niti Aayog vice-chairman Arvind Panagariya, was constituted on December 31, 2023.
Finance Minister Nirmala Sitharaman on Sunday laid the 16th Finance Commission report in the Lok Sabha, outlining the framework for tax revenue devolution between the Centre and the states for the 2026–2031 period.
The Finance Commission is a constitutional body mandated under Article 280 of the Constitution to recommend how taxes collected by the Union government should be shared with states. Its recommendations play a critical role in shaping Centre-state financial relations, fiscal federalism, and the ability of states to fund welfare schemes, infrastructure, and development programmes.
At the core of the Finance Commission’s mandate is the divisible pool of central taxes, which includes major taxes such as income tax and corporation tax. However, cesses and surcharges levied by the Centre are excluded from this pool, a point that has often been raised by states seeking a larger share of overall tax revenues.
For Kerala, the Finance Commission’s recommendations are crucial as the state relies heavily on its share of central taxes to fund social welfare schemes, healthcare, education, and local government spending. With limited scope to raise additional revenues and high committed expenditure, any change in the tax devolution formula or the size of the divisible pool can significantly affect Kerala’s fiscal space. The state has repeatedly flagged concerns over the growing use of cesses and surcharges by the Centre, which are excluded from tax sharing, and will closely watch how the 16th Finance Commission addresses issues of revenue stability, demographic performance, and expenditure needs during the 2026–2031 period.
The 16th Finance Commission, chaired by former Niti Aayog vice-chairman Arvind Panagariya, was constituted on December 31, 2023. Its recommendations will determine how financial resources are shared between the Centre and states for five years starting April 1, 2026.
The Commission submitted its report to President Droupadi Murmu on November 17, 2025. Apart from Panagariya, its members include retired bureaucrat Annie George Mathew, economist Manoj Panda, SBI Group Chief Economic Advisor Soumya Kanti Ghosh, RBI Deputy Governor T Rabi Sankar, with Ritvik Pandey serving as Secretary to the Commission.