Chairman of the 16th Finance Commission, Arvind Panagariya, on Monday submitted the panel’s much-anticipated report to President Droupadi Murmu. The report will outline the formula for the devolution of taxes between the Centre and states for the period 2026–31. Originally mandated to submit its findings by October 31, the commission received a one-month extension until November 30.
“Members of the 16th Finance Commission, led by its Chairman, Dr Arvind Panagariya, called on President Droupadi Murmu and submitted the Commission’s report for 2026-31,” Rashtrapati Bhavan said in a post on X.
Under its terms of reference, the 16th Finance Commission is responsible for determining the distribution of central taxes among states as well as recommending grants-in-aid for the five-year period beginning 2026–27. In preparation, the commission has visited all states and Union Territories to gather inputs and finalize its position on tax devolution and grants.
The commission comprises four members:
- Annie George Mathew, retired bureaucrat (full-time member)
- Manoj Panda, economist (full-time member)
- Soumya Kanti Ghosh, SBI Group Chief Economic Advisor (part-time member)
- T. Rabi Sankar, RBI Deputy Governor (part-time member)
Beyond advising on tax-sharing arrangements and revenue augmentation strategies, the panel has also reviewed the existing disaster management financing framework set up under the Disaster Management Act, 2005.
The Finance Commission—established under Article 280 of the Constitution—plays a crucial role in shaping Centre–state financial relations. The 16th Finance Commission was officially constituted on December 31, 2023.
The previous panel, the 15th Finance Commission chaired by N.K. Singh, had recommended that states receive 41% of the Centre’s divisible tax pool for 2021–22 to 2025–26, the same percentage proposed earlier by the 14th Finance Commission led by Y.V. Reddy.
According to the 2025–26 Budget documents, the Centre is expected to transfer ₹14.22 lakh crore to states as their share of taxes, out of the ₹42.70 lakh crore total tax collections estimated for the fiscal year.
Traditionally, finance commissions determine the share of central taxes using weighted indicators such as population, geographical area, demographic performance, fiscal effort, income distance and forest cover. However, this has often been a contentious issue between the Centre and states—particularly Opposition-ruled states—which have argued that their allocations were unfair.
Southern states, in particular, have objected to the use of population as a criterion, stating that it penalises states that have successfully reduced population growth.
The 15th Finance Commission had assigned the following weightages in its formula:
- 15% – Population
- 15% – Area
- 12.5% – Demographic performance
- 10% – Forest cover & ecology
- 2.5% – Tax and fiscal efforts
The recommendations in the newly submitted report will serve as the framework for Centre–state fiscal relations for the next five years, beginning in 2026.