The Centre has extended the term of the 14th Finance Commission by two months. Accordingly, the Commission has got time to submit its report by December 31. The Commission is a constitutional body and its recommendations are binding on the Government.

A Finance Ministry statement said the Commission ha​d ​sought extension of time by two months for submission of its report up to December 31, 2014, to examine financial projections and carry out consultations with the Governments of Andhra Pradesh and Telangana. This was done in view of the additional terms of reference made to the Commission on June 2 to make recommendations for newly created States after reorganisation of the State of Andhra Pradesh in accordance with the Andhra Pradesh Reorganisation Act, 2014.

The President constituted the 14th Commission on January 1, 2013. It will give its recommendations regarding the sharing of Union taxes, principles governing Grants-in-aid to States, and transfer of resources to local bodies. Originally the Commission was to submit its report on the basis of its terms of reference by October 31, covering a period of five years from April 1, 2015, to March 31, 2020.

For this edition of the commission, it has also been asked, while making recommendations, to consider the impact of the proposed Goods & Services Tax (GST) on the finances of the Centre and States and the mechanism for compensation in case of any revenue loss. The Government plans to introduce GST from April 1, 2016.

Former RBI Governor Y V Reddy is the Chairman of the Commission, while noted economist and former Planning Commission member Abhijit Sen, former Finance Secretary Sushama Nath, Director, National Institute for Public Finance and Policy M Govinda Rao, and former Acting Chairman of the National Statistical Commission Sudipto Mundle are members. Ajay Narayan Jha is the Secretary to the Commission.

The Finance Commission is constituted by the President under Article 280 of the Constitution, mainly to give its recommendations on distribution of tax revenues between the Union and the States and amongst the States themselves. Two distinctive features of the Commission’s work involve redressing the vertical imbalances between the taxation powers and expenditure responsibilities of the Centre and the States, respectively, and equalisation of all public services across the States.

It is the duty of the Commission to make recommendations to the President such as the principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India. It also suggests measures needed to augment the Consolidated Fund of a State to supplement the resources of the panchayats and municipalities in the State. Its functions also include finding any other matter referred to the Commission by the President in the interests of sound finance.

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