Under Article 280 of the Constitution, the President commissions the Finance Commission every fifth year. This body functions as the Finance Commission and consists of a Chairman and four other members.
The governor of a state shall, after every five years, constitute a finance commission to review the financial position of the panchayats. It shall make the following recommendations to the Governor:
The principles that should govern:
- The distribution between the state and the panchayats of the net proceeds of the taxes, duties, tolls, and fees levied by the state.
- The determination of taxes, duties, tolls, and fees that may be assigned to the panchayats.
- The grants-in-aid to the panchayats from the consolidated fund of the state.
The measures needed to improve the financial position of the panchayats.
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