Cabinet approves terms of reference for 16th Finance Commission

New Delhi: The Union Cabinet has approved the terms of reference for the 16th Finance Commission which include the distribution of taxes between the Centre and states.

According to an official statement issued on Wednesday, the terms of reference for the 16th Finance Commission are:

The distribution between the Union and the states of the net proceeds of taxes which are to be, or may be, divided between them under Chapter I, Part XII of the Constitution and the allocation between the States of the respective shares of such proceeds;

The principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India and the sums to be paid to the States by way of grants-in-aid of their revenues under article 275 of the Constitution for the purposes other than those specified in the provisos to clause (1) of that article; and

The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats and Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State.

The Commission may review the present arrangements on financing Disaster Management initiatives, with reference to the funds constituted under the Disaster Management Act, 2005, and make appropriate recommendations.

The Commission will make its report available by October 31, 2025 covering a period of five years commencing on April 1, 2026.

The terms of reference for the 16th Finance Commission will be notified in due course of time, the statement added.