Article 280 is a foundational provision in the Constitution of India that mandates the establishment of the Finance Commission. This constitutional body is a key mechanism for ensuring fiscal federalism and financial balance between the Union and the States.
The provision originated from Draft Article 260, which was discussed in the Constituent Assembly in August 1949. It was created to solve the structural problem where the Union government levies the most buoyant taxes, while the States bear the heavier expenditure responsibilities for public services, thus creating a vertical fiscal imbalance. Article 280(1) requires the President of India to constitute the Finance Commission within two years from the commencement of the Constitution and thereafter at the expiration of every fifth year, or earlier if deemed necessary. The Commission consists of a Chairman and four other members appointed by the President, whose qualifications are determined by Parliament through the Finance Commission (Miscellaneous Provisions) Act, 1951.
The core mechanism is outlined in Article 280(3), which makes it the Commission's duty to recommend to the President the distribution of the net proceeds of taxes between the Union and the States (vertical devolution) and the allocation of the States' share among them (horizontal devolution). It also recommends the principles governing grants-in-aid to the States out of the Consolidated Fund of India under Article 275.
The provision connects directly to the concept of fiscal federalism and is distinct from the State Finance Commission, which is constituted under Article 243-I and Article 243-Y to address the devolution of resources from a State to its Panchayats and Municipalities. A significant change occurred with the 73rd and 74th Constitutional Amendments of 1992, which expanded the Commission's duties to include recommending measures to augment a State's Consolidated Fund to supplement the resources of its Panchayats and Municipalities based on the recommendations of the State Finance Commission. While the recommendations of the Finance Commission are advisory in nature, they carry significant constitutional and political weight. The abolition of the extra-constitutional Planning Commission in 2015 has made the Finance Commission the principal channel for formula-based, untied transfers.