Cabinet nod to constitute 15th Finance Commission

The Union Cabinet on Wednesday gave its nod to set up the 15th Finance Commission that will decide on the distribution of taxes between the Centre, states  and local bodies.

The Finance Commission is set up every five years, and  the  recommendations of the 15th Finance Commission are expected to be implemented from April 1, 2020.

Finance Minister Arun Jaitley said the recommendations of the 15th Finance Commission  are  keenly awaited as it will have an impact on the way the income from taxes is shared among Centre, states and local bodies.

"The exercise will be different as it will have to take into account the changes in tax sharing after the implementation of GST," Jaitley said.

After the Cabinet decision, the government will have to issue a notification constituting the 15th Finance Commission and announcing its terms of reference.

The recommendations of the 14th Finance Commission were implemented from April 1, 2015.

It had changed the fiscal relationship between the Centre and states by raising the share of states in Central taxes by 10% from the then 32%.

"Usually, it takes about two years for a Finance Commission to make its recommendations after the terms of reference are finalised," Jaitley said.

Former Rajya Sabha member N K Singh's name is doing the rounds as a prospective candidate for the chairmanship of the  commission.

Jaitley said the composition and terms of reference for the 15th Finance Commission will be announced in "due course of time".

The 14th Finance Commission, chaired by former RBI Governnor Y V Reddy, was set up on January 2, 2014 and  its report was submitted on December 15, 2014.