The 15th Finance Commission (XV-FC) is a constitutional body, not an act or scheme, established by the President of India under Article 280 of the Constitution. It was constituted on November 27, 2017, with N.K. Singh as its Chairman. The Commission's purpose is to solve the problem of equitable financial distribution between the Union and State governments, thereby strengthening cooperative federalism. It was tasked with recommending the mechanism for revenue sharing for the five-year period from 2021-22 to 2025-26.
The mechanism of the Commission involves two main types of devolution: vertical and horizontal. For vertical devolution, the Commission recommended that the States' share in the net proceeds of central taxes be set at 41% for the 2021-26 period. This figure is a 1% reduction from the 42% recommended by the 14th Finance Commission, an adjustment made to provide for the newly formed Union Territories of Jammu and Kashmir and Ladakh from central resources. For horizontal devolution (allocation among the States), the Commission used criteria such as Income Distance (45%), Population (2011 Census) (15%), Area (15%), Forest and Ecology (10%), Demographic Performance (12.5%), and Tax Effort (2.5%). The Commission also recommends principles for the Grants-in-aid of the revenues of the States out of the Consolidated Fund of India, as mandated by Article 280(3)(b).
The Finance Commission connects directly to the constitutional framework of fiscal federalism, operating under Article 280 and the Finance Commission (Miscellaneous Provisions) Act, 1951. Its work is also closely related to the Goods and Services Tax (GST) regime, which was a major economic change that influenced its terms of reference. The 15th Finance Commission was superseded by the 16th Finance Commission, which was constituted on December 31, 2023, and is chaired by Arvind Panagariya.