Article 280 provides for a Finance Commission which is a quasi judicial body. It is constituted after 5 years or earlier as President may decide.
Chairman and four members are appointed by President. They are eligible for reappointment.
The qualifications and the way of selection is to be decided by the Parliament. The Parliament seeks for following qualifications-
The Chairman should have experience in public affairs. The present chairman of 13th Finance Commission is Dr. Vijay Kelkar. He was appointed in 2007 and was expected to submit report in 2009 and the report shall be implemented from 2010 to 2015.
Four other members should be selected from any of these fields-
1. Judge of High Court or qualified to be appointed as one
2. Person having specialized knowledge of finance and accounts of government.
3. Person having wide experience in financial matters and also administration.
4. Person having special knowledge of economics.
Recommendations to the President on-
1. Distribution of net proceeds of taxes shared between Centre and States, and allocation between the States of respective shares of such proceeds.
2. Principles governing grant in aids by Centre to States
3. The measures needed to augment the consolidated fund of state in order to supplement resources of panchayats and municipalities in State.
4. Any matter in interest of sound finance as reffered to by President.
Till 1960, grants were given every yr to Assam, Bihar, Bengal and Orissa, as a share of net proceeds of exports of jute and jute products.
The reports are submitted by the commission to the President. He presents them before both Houses of the Parliament alongwith a memorandum explaining actions taken on its recommendations.
Government is not bound by the recommendations of the Commission. However, P.V. Rajmannar says, Chairman of 4th Finance Commission says that recommendations should not be turned down by government unless it has very compelling reasons to do so.
Impact of PlanningCommission
The functions of Planning Commission and Finance Commission overlap in certain ways-
Art 275 says that FC will consider both capital and revenue requirements of the States in formulating a scheme of devolution and in recommendation of grants.
But after Planning Commission came into existence, which looks after plans, so it recommends loans and grants by Centre to States for plan projects. Now the FC will determine revenue gap in each State and look after filling up of gap by devolution, partly by grant in aid and partly by distributing taxes.