Union cabinet gives nod to terms of reference for 16th Finance Commission

The Union Cabinet has given its nod to the 'Terms of Reference' for the 16th Finance Commission to enable it to make recommendations on the distribution of net proceeds of taxes between the Union and states; allocation between states of respective shares of such proceeds; grants-in-aid and the revenues of states and measures needed to supplement the resources of 'panchayats' during the award period.

The recommendations will cover a five-year period commencing April 1, 2026, Information and Broadcasting Minister Anurag Thakur said on Wednesday, giving details about the decisions taken at the Cabinet meeting chaired by Prime Minister Narendra Modi in Delhi last evening.

The commission will submit its report by October 31, 2025. The distribution between the Union and states of the net proceeds of taxes which are to be, or may be, divided between them.

Another terms of reference (ToR) approved by the Cabinet is about the principles governing the grants-in-aid of the revenues of states out of the Consolidated Fund of India and the sums to be paid to states by way of grants-in-aid of their revenues. It will also suggest measures needed to augment the Consolidated Fund of a State to supplement the resources of panchayats and municipalities, as per the ToR.