The Governor of a state shall, after every five years, constitute a finance commission. Articles 243-I and 243-Y deal with the formation of this body. The composition, qualifications of members, and the manner of their selection is decided by the concerned state legislature.

Functions:

• The distribution of the net proceeds of taxes, tolls, and fees between the state and local bodies.
• The determination of such taxes, duties, and tolls to be assigned to local bodies.
• The grants-in-aid to be given to the local bodies from the consolidated fund of the state.
• Measures to be taken for improving the financial position of local bodies.
• Any other matter referred to the commission by the governor of the state.