Article 243I of the Indian Constitution prescribes that the
Governor of a State shall, within one year from the commencement of the
Constitution (Seventy-third Amendment) Act, 1992 and thereafter every fifth year,
constitute a Finance Commission
to review the financial position of the Panchayats and make recommendations to the Governor.
A. Principles which should govern
- Distribution between the State and the Panchayats of the net proceeds of
taxes, duties, tolls and fees leviable by the State and allocation of
their respective shares.
- Determination of the taxes, duties, tolls and fees which may be assigned
to or appropriated by the Panchayats.
- Grants-in-aid to the Panchayats from the Consolidated Fund of the State.
B. Financial Improvement
Recommend measures required to improve the financial position of the
Panchayats.
C. Other Matters
Any other matter referred to the Finance Commission by the Governor in the
interest of sound financial management of the Panchayats.
Article 243Y
Article 243Y further provides that the Finance Commission
constituted under Article 243I shall make similar recommendations for
Municipalities.
The Governor is required to place every recommendation of the State Finance
Commission before the State Legislature together with an explanatory
memorandum indicating the action taken on those recommendations.