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The 16th Finance Commission has submitted its report to the President on tax distribution and funding structure for 2026 to 2031. This report includes a new formula for tax sharing between the Center and the states, suggestions to strengthen the funding of Panchayats and Municipalities and the timeline of the next Finance Commission cycle, which will start from 1 April 2026.
New Delhi. The 16th Finance Commission has submitted its report related to tax distribution and financial sharing for the period from 2026 to 2031 to President Draupadi Murmu. This is the same document on which the entire structure of the tax share to be received by the Center and the states in the next five years will be decided. Commission Chairman Arvind Panagariya submitted this report to the President on Monday.
In India, a Finance Commission is formed every five years, which decides the distribution of net tax proceeds. Currently, states are getting 41 percent of the total central tax, which is applicable on the basis of the recommendations of the 15th Finance Commission. Now the new report will decide how much share the states will get from 2026 onwards and on what parameters the distribution will be done.
Who is the team of 16th Finance Commission
This commission includes former Expenditure Secretary Annie George Mathew and Manoj Panda, who has previously been the director of the Institute of Economic Growth Delhi, as full-time members. RBI Deputy Governor TB Ravi Shankar and SBI Group Chief Economic Advisor Saurabh Kanti Ghosh have been included as part-time members. The Commission is getting the support of Secretary Ritvik Pandey, two Joint Secretaries and an Economic Advisor.
What will the commission recommend for 2026 to 2031
This report includes main recommendations to decide the tax sharing formula between the Center and the states. Apart from this, there will also be suggestions to strengthen the Consolidated Fund of the State Governments, so that the resources available to Panchayats and Municipalities can be increased. This report tells which states will get how much tax share and which parameters will be given priority in it.
How was the timeline and framework decided?
The government had extended the tenure of the commission by one month till 30 November, whereas it was established on 31 December 2023. Now the report of the commission will go to the Finance Ministry, where it will be examined in detail before the budget. Centrally sponsored schemes and central sector schemes are also made according to the Finance Commission cycle, so that there is equality in funding and resource allocation.
When will the next finance commission cycle start?
The new recommendations of the 16th Finance Commission will come into effect from 1 April 2026. Along with this, there will also be a review of those government schemes which are ending by this date. The process of checking the output and impact of any scheme will be mandatory before continuing it in the next cycle.
