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EconomyData sets15th Finance Commission

States' share of the divisible pool

41% of the divisible pool.

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Down from 42% after the reorganisation of Jammu and Kashmir.

Practise this in the app: flashcards, quiz and a timed answer
Prelims

Quick recall

What share did the 15th FC give States?
41% of the divisible pool.
What did the 14th FC give?
42%.
Who chaired the 15th FC?
N.K. Singh.
Which criterion has the highest weight?
Income distance, 45%.
Which Article provides for the Finance Commission?
Article 280.
Who chairs the 16th FC?
Arvind Panagariya.

Asked before in UPSC

Recurring theme: Fiscal federalism and Finance Commission transfers

Mains
  1. 2025 · GS2 · 15 marks

    Examine the evolving pattern of Centre-State financial relations in the context of planned development in India. How far have the recent reforms impacted the fiscal federalism in India?

    Vertical devolution of 41% of the divisible pool is a central data point in any answer on fiscal federalism.

  2. 2021 · GS2 · 10 marks

    How have the recommendations of the 14th Finance Commission of India enabled the States to improve their fiscal position?

    The 14th FC raised states' share to 42%; the 15th set it at 41%, the comparison this answer needs.

  3. 2018 · GS2 · 15 marks

    How is the Finance Commission of India constituted? What do you know about the terms of reference of the recently constituted Finance Commission? Discuss.

    Tests Article 280 and the 15th Finance Commission's terms of reference, which produced the 41% share.

  4. 2013 · GS2 · 10 marks

    Discuss the recommendations of the 13th Finance Commission which have been a departure from the previous commissions for strengthening the local government finances.

    Tracks how successive Finance Commissions have changed transfers, including to local bodies.

Prelims
  1. 2025 · Prelims

    Which of the following statements with regard to recommendations of the 15th Finance Commission of India are correct? I. It has recommended grants of Rs 4,800 crores from the year 2022-23 to the year 2025-26 for incentivizing States to enhance educational outcomes. II. 45% of the net proceeds of Union taxes are to be shared with States. III. Rs 45,000 crores are to be kept as performance-based incentive for all States for carrying out agricultural reforms. IV. It reintroduced tax effort criteria to reward fiscal performance. Select the correct answer using the code given below: (a) I, II and III (b) I, II and IV (c) I, III and IV (d) II, III and IV

    Tests the 15th FC's award, including the 41% (not 45%) share of the divisible pool.

  2. 2015 · Prelims

    With reference to the Fourteenth Finance Commission, which of the following statements is/are correct? 1. It has increased the share of States in the central divisible pool from 32 percent to 42 percent. 2. It has made recommendations concerning sector-specific grants. Select the correct answer using the code given below: (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2

    Tests the 14th FC's jump in states' share from 32% to 42%, the baseline for the 15th FC's 41%.

The basics

Why it matters

The Finance Commission recommends how central taxes are shared with States. The 15th Finance Commission set the States' share of the divisible pool at 41% for 2021-26.

41%
States' share of the divisible pool, 15th Finance Commission
For 2021-26; 42% under the 14th.

How the share is divided among States

Horizontal distribution follows set criteria.

15th Finance Commission criteria
  1. 1Income distance45%
  2. 2Population (2011)15%
  3. 3Area15%
  4. 4Forest and ecology10%
  5. 5Demographic performance12.5%
  6. 6Tax effort2.5%

You now know

  • The 15th Finance Commission (N.K. Singh) set the States' share at 41% for 2021-26.
  • The 14th had recommended 42%; 1% adjusted for the new UTs of J&K and Ladakh.
  • Income distance carries the highest weight (45%).
  • The 16th Finance Commission (Arvind Panagariya) covers 2026-31.

Go deeper

In one line: The divisible pool share decides how much central tax money States get.

Why it matters for UPSC

Fiscal federalism is a core GS2 and GS3 topic.

The core idea

The Finance Commission balances equity and efficiency. Cesses and surcharges outside the pool reduce what States actually get.

Where to go next

In one line: States' effective share is lower than 41% because of growing Cesses and surcharges.

Debates

Weight for population versus demographic performance, and southern States' concerns. See Finance Commission.

Where to go next

Finance Commission

The body that recommends tax sharing

In one line: The Finance Commission, under Article 280, recommends sharing of central taxes and grants to States every five years.

Chairs

15th: N.K. Singh; 16th: Arvind Panagariya.

Nature

Advisory.

Where to go next

Cesses and surcharges

Central levies not shared with States

In one line: Cesses and surcharges are levies whose proceeds stay with the Centre.

Why it matters

They are outside the divisible pool, so States get no share.

Trend

Their share of gross tax revenue has risen.

Where to go next

Prelims-style quiz

  1. The 15th Finance Commission was chaired by:

    1. Arvind Panagariya
    2. N.K. Singh
    3. Vijay Kelkar
    4. Y.V. Reddy
    Show answer

    Answer: (b) N.K. Singh. N.K. Singh.

  2. Consider the following:
    1. The 15th FC set the States' share at 41%.
    2. Cesses and surcharges are part of the divisible pool.
    Which of the statements given above is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Show answer

    Answer: (a) 1 only. Cesses and surcharges are outside the divisible pool.

  3. Which criterion rewards States that controlled population growth?

    1. Demographic performance
    2. Income distance
    3. Area
    4. Tax effort
    Show answer

    Answer: (a) Demographic performance. Demographic performance.

  4. The Finance Commission is constituted under:

    1. Article 280
    2. Article 282
    3. Article 263
    4. Article 275
    Show answer

    Answer: (a) Article 280. Article 280.

Syllabus

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