Finance Commission is a quasi-judicial body. The formation of FC is provided by the constitution under article 280. It is constituted every fifth year or at such an earlier time as the president of India considers necessary.

Composition:

FC consists of a chairman and four other members appointed by the President. The qualification of the members and the manner of their selection is determined by Parliament. They are eligible for reappointment. The four members should be selected from amongst the following:

1. A judge of HC or one qualified to be appointed as such.
2. A person with specialized knowledge in finance and accounts of the government.
3. A person with wide experience in financial matters and administration.
4. A person with special knowledge in economics.

Functions:

FC makes recommendations to the president on the following matters:

1. Distribution and allocation of the net proceeds of the taxes between center and states and also among different states.
2. The principles that should govern the grants-in-aid to the states.
3. Measures needed to augment the consolidated fund of the state to supplement the resources of local bodies.
4. Any other matter referred to it by the president of India.

Role of FC:       

• The commission submits its report to the president who lays it before both the Houses of the Parliament.
• The recommendations made by FC are only advisory in nature and are not binding on the government.
• Finance Commission is envisaged as the balancing wheel of fiscal federalism in India