♦ Finance Minister Nirmala Sitharaman laid the 16th Finance Commission report for tax revenue devolution between Centre and states for the period 2026-2031 in the Lok Sabha on 1 February 2026. The 16th Finance Commission’s recommendations that have been accepted by the government and which, while keeping the share of states the same as in the 15th Finance Commission. It has done so by primarily, introducing the size of a state’s economy as a variable, and altering both the measure and the weightage assigned to demographic performance.

♦ The 16th Finance Commission has recommended retaining states’ share in the divisible pool of central taxes at 41 percent, while pitching for outcome-based spending, greater transparency in tax devolution data and stronger fiscal discipline at the state level. The panel said there is a need to improve efficiency in public spending and strengthen fiscal accountability frameworks across states. 

♦ The Finance Commission, established under Article 280 of the Indian Constitution, is a constitutional body that recommends the devolution of tax revenues between the central and state governments. Cess and surcharge levied by the Centre are not part of the divisible pool. 

♦ The Finance Commission is a constitutional body that gives suggestions on Centre-state financial relations and is set up periodically.

♦ The 16th Finance Commission, with Dr Arvind Panagariya as Chairman, was set up on December 31, 2023 for the April 2026–March 2031 period.