Finance Commission Practice Questions
20 free Finance Commission practice questions for the Indian Polity. Tap an option to answer — you get instant feedback, the correct answer, and a detailed explanation for every question.
Which Article of the Indian Constitution empowers the President to constitute a Finance Commission?
- A Article 263
- B Article 280
- C Article 324
- D Article 315
Correct answer: Article 280
Article 280 provides that the President shall, within two years from the commencement of the Constitution and thereafter at the expiration of every fifth year or at such earlier time as he considers necessary, constitute a Finance Commission. It is a quasi-judicial body.
Who determines the qualifications of the members of the Finance Commission and the manner of their selection?
- A The President of India
- B The Parliament
- C The Supreme Court
- D The NITI Aayog
Correct answer: The Parliament
While the President appoints the members, the Constitution authorizes the Parliament to determine their qualifications and the manner of selection. Accordingly, Parliament enacted the Finance Commission (Miscellaneous Provisions) Act, 1951.
The Finance Commission consists of a Chairman and how many other members?
- A Three
- B Four
- C Five
- D Six
Correct answer: Four
The Commission consists of a Chairman and four other members, all appointed by the President. They hold office for such period as specified by the President in his order and are eligible for reappointment.
Which of the following is NOT a qualification required for being a member of the Finance Commission?
- A A Judge of a High Court or one qualified to be appointed as such
- B Special knowledge of finances and accounts of the Government
- C Wide experience in financial matters and administration
- D A member of the Lok Sabha with at least 10 years of experience
Correct answer: A member of the Lok Sabha with at least 10 years of experience
The Finance Commission Act specifies the four qualifications: High Court judge, special knowledge of government accounts, wide experience in finance/administration, or special knowledge of economics. Being a member of Parliament is not a prescribed qualification.
The recommendations made by the Finance Commission are:
- A Binding on the Union Government
- B Binding on both Union and State Governments
- C Advisory in nature and not binding on the Government
- D Subject to approval by the Supreme Court
Correct answer: Advisory in nature and not binding on the Government
The Constitution does not specify that the Commission's recommendations are binding. They are advisory in nature, though historically the Union Government has generally accepted the recommendations regarding the sharing of tax proceeds.
To whom does the Finance Commission submit its report?
- A The Parliament
- B The Prime Minister
- C The President
- D The Union Finance Minister
Correct answer: The President
The Finance Commission submits its report to the President of India. The President then lays the report, along with an explanatory memorandum as to the action taken on its recommendations, before both Houses of Parliament.
The horizontal distribution of tax proceeds among the states is based on criteria determined by the Finance Commission. Which factor usually carries the highest weightage?
- A Area
- B Forest and Ecology
- C Income Distance
- D Demographic Performance
Correct answer: Income Distance
Income Distance, which measures the gap between a state's per capita income and that of the state with the highest per capita income, has traditionally been the most heavily weighted criterion. This is intended to promote fiscal equity among states.
What is the primary function of the Finance Commission regarding the 'net proceeds' of taxes?
- A Collection of all taxes on behalf of the states
- B Distribution between Union and States, and allocation among States
- C Determining applicable tax rates for the next fiscal year
- D Auditing the annual expenditure of the Union Government
Correct answer: Distribution between Union and States, and allocation among States
The main function of the Commission is to recommend the distribution of the net proceeds of taxes to be shared between the Union and the States (vertical devolution) and the allocation of such proceeds among the States (horizontal devolution).
Which body was described as the 'balancing wheel of fiscal federalism in India'?
- A NITI Aayog
- B Finance Commission
- C GST Council
- D Reserve Bank of India
Correct answer: Finance Commission
The Finance Commission is considered the balancing wheel of fiscal federalism because it corrects vertical and horizontal imbalances between the Centre and States. It ensures a fair distribution of resources in a federal structure.
Who was the Chairman of the First Finance Commission of India?
- A K. Santhanam
- B A.K. Chanda
- C K.C. Neogy
- D P.V. Rajamannar
Correct answer: K.C. Neogy
K.C. Neogy was appointed as the Chairman of the First Finance Commission in 1951. Since then, Commissions have been constituted every five years to revise the devolution formula.
The Finance Commission recommends the 'Grants-in-aid' to the States out of which fund?
- A Public Account of India
- B Contingency Fund of India
- C Consolidated Fund of India
- D National Disaster Response Fund
Correct answer: Consolidated Fund of India
Under Article 275, the Finance Commission recommends the principles that should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India. These are usually 'gap-filling' grants for states with fiscal deficits.
Which constitutional amendment introduced a new function for the Finance Commission regarding Panchayats and Municipalities?
- A 42nd Amendment
- B 44th Amendment
- C 73rd and 74th Amendments
- D 101st Amendment
Correct answer: 73rd and 74th Amendments
The 73rd and 74th Amendments added clauses (bb) and (c) to Article 280(3). They require the Central Finance Commission to recommend measures to augment the Consolidated Fund of a State to supplement the resources of Panchayats and Municipalities.
A member of the Finance Commission may be disqualified if he:
- A Is of unsound mind
- B Is an undischarged insolvent
- C Has such financial interest as is likely to affect his functions prejudicially
- D All of the above
Correct answer: All of the above
The Finance Commission (Miscellaneous Provisions) Act, 1951, lists these as grounds for disqualification. This ensures the integrity and impartiality of the Commission's recommendations.
The 'Fiscal Capacity Distance' is a criterion used for horizontal distribution. It is essentially the same as:
- A Tax Effort
- B Income Distance
- C Population Growth
- D Geographical Area
Correct answer: Income Distance
In recent Finance Commission reports, the term 'Income Distance' is used to measure fiscal capacity distance. It serves as a proxy for the fiscal needs of the states, giving more resources to poorer states.
Who was the Chairman of the 15th Finance Commission?
- A Y.V. Reddy
- B Vijay Kelkar
- C N.K. Singh
- D C. Rangarajan
Correct answer: N.K. Singh
N.K. Singh headed the 15th Finance Commission, which provided recommendations for the period 2021-22 to 2025-26. The 14th Commission was headed by Y.V. Reddy.
Which Article deals with the 'State Finance Commission' for local bodies?
- A Article 243-I
- B Article 280(3)
- C Article 263
- D Article 324
Correct answer: Article 243-I
Article 243-I requires the Governor of a state to constitute a State Finance Commission every five years. It reviews the financial position of the Panchayats and recommends the distribution of taxes between the State and local bodies.
The Union Finance Commission considers the recommendations of which body while suggesting measures to augment state funds for local bodies?
- A The State Legislative Assembly
- B The State Finance Commission
- C The District Planning Committee
- D The NITI Aayog
Correct answer: The State Finance Commission
Under Article 280(3), the Central Finance Commission makes recommendations for local bodies 'on the basis of the recommendations made by the Finance Commission of the State.' This creates a linked fiscal relationship between the three tiers of government.
The term of the Finance Commission is generally how many years?
- A 3 years
- B 5 years
- C 6 years
- D 4 years
Correct answer: 5 years
As per Article 280, the Commission is constituted every fifth year. However, the President can constitute it earlier if he deems it necessary for fiscal adjustments.
Which of the following describes the relationship between the Finance Commission and the now-defunct Planning Commission?
- A They had identical functions
- B The Planning Commission was a constitutional body while Finance Commission was statutory
- C There was an overlap in their functions regarding grants to states
- D The Finance Commission was abolished to create the Planning Commission
Correct answer: There was an overlap in their functions regarding grants to states
Before the creation of NITI Aayog, there was a significant overlap as both bodies recommended grants to states. The Finance Commission (Constitutional) dealt with non-plan expenditure, while the Planning Commission (Non-Constitutional) dealt with plan expenditure.
The 15th Finance Commission used which census year data for its population-related criteria?
- A 1971 Census
- B 1991 Census
- C 2001 Census
- D 2011 Census
Correct answer: 2011 Census
The 15th Finance Commission was mandated to use the 2011 Census data. This was a shift from earlier commissions that were often required to use 1971 data to reward states that had successfully controlled population growth.