16th Finance Commission's Report Paves Way for New Centre-State Tax Dynamics

The 16th Finance Commission, chaired by Arvind Panagariya, has submitted a report outlining the formula for tax devolution between India's Centre and states for 2026-31. The report assesses grants-in-aid, tax distribution, and disaster management finances. The commission comprises full-time and part-time members from diverse economic backgrounds.

In a significant move, the 16th Finance Commission, led by Chairman Arvind Panagariya, presented its detailed report to President Droupadi Murmu. The submission marks a pivotal step in redefining the fiscal relationship between India's central and state governments for the years 2026 through 2031.

The commission was tasked with formulating a formula that determines the division of central taxes and grants-in-aid to states for the five-year term starting in 2026-27. It also explored methods to enhance revenue and reviewed current disaster management funding arrangements, referencing the Disaster Management Act, 2005.

The panel included full-time members such as economist Manoj Panda and part-time members like RBI Deputy Governor T Rabi Sankar. The discussions highlighted ongoing tensions, with some states voicing concerns over perceived inequities in tax distribution, particularly in regions where population control measures have been effective.

(With inputs from agencies.)