Q1. With reference to the Finance Commission of India, consider the following statements 67th B.P.S.C. (Pre), 2021

1. The Finance Commission is a statutory body 

2. The finance Commission was set up under Article 280 of the Constitution 

3. The recommendations made by the Finance Commission are only advisory in nature. 

4. The First Finance Commission was set up in 1950. 

Which of the above statements are correct? 

(a) 1 and 4 only 

(b) 3 and 4 only 

(c) 2 and 3 only 

(d) 2 and 4 only 

Ans. (c) 

Exp:

  1. Article 280 of the Indian Constitution provides for the constitution of the Finance Commission by the President. It consists of a Chairman and four other members appointed by the President. Its main function is to make recommendations regarding distribution of tax proceeds between the Union and the States, grants-in-aid, and other matters referred to it by the President in the interest of sound finance.
  2. The Finance Commission is a statutory body: This statement is incorrect, because the Finance Commission is a constitutional body, not a statutory body. It is created directly by the Constitution under Article 280.
  3. The Finance Commission was set up under Article 280 of the Constitution: This statement is correct, as Article 280 specifically provides for the Finance Commission.
  4. The recommendations made by the Finance Commission are only advisory in nature: This statement is correct, because its recommendations are not binding on the Government.
  5. The First Finance Commission was set up in 1950: This statement is incorrect, because the First Finance Commission was constituted vide Presidential Order dated 22.11.1951, and it was formally set up on 6 April 1952 under the chairmanship of Shri K.C. Neogy. 
  6. Hence, the correct answer is (c).


Q2. Which of the following recommends the principles for sharing of revenues among the Union and the States? I.A.S. (Pre) 2002 

(a) Finance Commission 

(b) Inter-State Council 

(c) Union Ministry of Finance 

(d) Planning Commission 

Ans: (a)

Exp:

  1. The Finance Commission, constituted under Article 280 of the Constitution, is the constitutional body responsible for recommending the principles governing the distribution of revenues between the Union and the States as well as the allocation of shares among the States.
  2. (b) Inter-State Council: This body mainly deals with coordination and dispute resolution between States and the Centre, not revenue distribution principles. Hence, it is incorrect.
  3. (c) Union Ministry of Finance: It is involved in budget preparation and fiscal management, but it does not constitutionally determine revenue-sharing principles. Hence, incorrect.
  4. (d) Planning Commission: It (now replaced by NITI Aayog) dealt with development planning and allocation of plan funds, not constitutional revenue sharing. Hence, incorrect.
  5. Thus, the correct answer is (a).


Q3. Given below are two statements one is labelled as Assertion (A) and other as Reason (R): U.P.P.C.S. (Pre) 2021

Assertion (A): The President of India determines the qualifications of the Chairman and Members of the Finance Commission. 

Reason (R): Chairman and members are appointed by the President of India. Select the correct answer using the codes given below. 

Codes: (a) Both (A) and (R) are true and (R) is correct explanation of (A) 

(b) Both (A) and (R) are true, but (R) is not correct explanation of (A) 

(c) (A) is true, but (R) is false 

(d) (A) is false, but (R) is true 

Ans. (d) 

Exp:

  1. Article 280 of the Constitution provides for the Finance Commission and states that it is constituted by the President, consisting of a Chairman and four members appointed by him.
  2. Assertion (A): The President of India determines the qualifications of the Chairman and Members of the Finance Commission.
  3. This statement is false, because the qualifications and manner of selection of members are determined by Parliament under the Finance Commission (Miscellaneous Provisions) Act, 1951, not by the President. Article 280 only empowers the President to constitute and appoint the Commission.
  4. Reason (R): Chairman and members are appointed by the President of India.
  5. This statement is true, as Article 280 clearly states that the Chairman and members of the Finance Commission are appointed by the President.
  6. Thus, (A) is false but (R) is true.
  7. Hence, the correct answer is (d).


Q4. Who among the following determines the qualification which shall be requisite for appointment as member of the finance commission? 71st B.P.S.C. (Pre) 2025

(a) President of India 

(b) Council of Ministers 

(c) Parliament by Act 

(d) Union Cabinet 

Ans. (c) 

Exp:

  1. The Finance Commission is constituted under Article 280 of the Constitution by the President of India. However, Article 280(2) clearly provides that Parliament may by law determine the qualifications and manner of selection of members of the Finance Commission.
  2. The qualifications and manner of selection of members are determined by Parliament under the Finance Commission (Miscellaneous Provisions) Act, 1951.
  3. Thus, the correct answer is (c).


Q5. What is/are true in reference to the Finance Commission? 

(i) There are total 5 members in Commission 

(ii) At least one member of Commission must be Judge of High Court or Supreme Court 

(iii) The Chairman of Commission cannot be reappointed 

(iv) First Chairman of Commission was K. Santhanam 

(a) (i), (ii) and (iv) 

(b) (i), (ii) and (iii) 

(c) (i) and (iii) 

(d) Only (i)

Ans. (d)

Exp:

  1. Under Article 280 of the Constitution, the Finance Commission consists of a Chairman and four other members, appointed by the President. The qualifications and manner of selection of members are laid down by Parliament through the Finance Commission (Miscellaneous Provisions) Act, 1951.
  2. (i) There are total 5 members in Commission: This statement is correct, because the Finance Commission consists of one Chairman and four other members.
  3. (ii) At least one member of Commission must be Judge of High Court or Supreme Court: This statement is incorrect, because the Act provides that members may be selected from persons having judicial, financial, administrative, or economic expertise. It does not make it compulsory that one member must be a High Court or Supreme Court Judge.
  4. (iii) The Chairman of Commission cannot be reappointed: This statement is incorrect, because members of the Finance Commission are eligible for reappointment.
  5. (iv) First Chairman of Commission was K. Santhanam: This statement is incorrect, because the First Finance Commission was chaired by Shri K.C. Neogy. K. Santhanam was not the first Chairman.
  6. Hence, the correct answer is (d).


Q6. With reference to Union Finance Commission, which of the following statement/s is/are correct? U.P.P.C.S. (Pre.) 2023

(1) Finance Commission has a Chairman and six members. 

(2) It submits its report to the NITI Aayog. 

Select the correct answer using the code given below :

Code : 

(a) Both (1) and (2) 

(b) Only (2) 

(c) Neither (1) nor (2) 

(d) Only (1) 

Ans. (c)  

Exp:

  1. The Finance Commission of India is a constitutional body established under Article 280 of the Constitution. It is constituted by the President and makes recommendations regarding distribution of tax revenues between the Union and the States.
  2. (1) Finance Commission has a Chairman and six members: This statement is incorrect, because as per Article 280 and the Finance Commission Act, it consists of a Chairman and four other members (total five members), not six members.
  3. (2) It submits its report to the NITI Aayog: This statement is incorrect, because the Finance Commission submits its report directly to the President of India, not to NITI Aayog. NITI Aayog is a policy think tank and has no constitutional role in receiving Finance Commission reports.
  4. Hence, the correct answer is (c).


Q7. Consider the following statements:  I.A.S. (Pre) 2003

The function (s) of the Finance Commission is/are – 

1. To allow the withdrawal of the money out of the Consolidated Fund of India. 

2. To allocate among the States the shares of proceeds of taxes. 

3. To consider applications for grants-in-aid from States. 

4. To supervise and report on whether the Union and State Governments are levying taxes in accordance with the budgetary provisions. 

Which of these statements is/are correct? 

(a) Only 1 

(b) 2 and 3 

(c) 3 and 4 

(d) 1, 2 and 4 

Ans. (b) 

  1. The Finance Commission of India, established under Article 280, is a constitutional body that makes recommendations to the President regarding the distribution of financial resources between the Union and the States and related fiscal matters.
  2. To allow the withdrawal of money out of the Consolidated Fund of India: This statement is incorrect, because as per Article 266, withdrawal from the Consolidated Fund of India can only be done in accordance with law and parliamentary appropriation, and not on the recommendation of the Finance Commission. The Finance Commission has no role in authorising withdrawals.
  3. To allocate among the States the shares of proceeds of taxes: This statement is correct, as the Finance Commission recommends the distribution of net tax proceeds between the Union and the States and among States under Article 280.
  4. To consider applications for grants-in-aid from States: This statement is correct, because the Commission recommends the principles governing grants-in-aid to States from the Consolidated Fund of India.
  5. To supervise and report on whether the Union and State Governments are levying taxes in accordance with the budgetary provisions: This statement is incorrect, as the Finance Commission has no supervisory or audit function; this role is performed by institutions like the Comptroller and Auditor General (CAG).
  6. Hence, the correct answer is (b).


Q8. With reference to the Finance Commission of India, which of the following statements is correct? I.A.S. (Pre) 2011

(a) It encourages the inflow of foreign capital for infrastructure development. 

(b) It facilitates the proper distribution of finances among the Public Sector Undertakings. 

(c) It ensures transparency in financial administration. 

(d) None of the statements (a), (b) and (c) given above is correct in this context. 

Ans. (d) 

Exp:

  1. The Finance Commission of India, established under Article 280 of the Constitution, is a constitutional body whose primary function is to make recommendations to the President regarding distribution of tax revenues between the Union and the States, grants-in-aid to States, and measures to strengthen local bodies’ finances. It does not perform executive or regulatory functions related to capital inflow, PSUs, or administrative transparency.
  2. (a) It encourages the inflow of foreign capital for infrastructure development: This is incorrect, as promoting foreign investment is not a function of the Finance Commission; it is handled by economic and investment policy bodies like the Government and RBI.
  3. (b) It facilitates the proper distribution of finances among the Public Sector Undertakings: This is incorrect, because allocation of finances to PSUs is managed through government budgeting and administrative ministries, not the Finance Commission.
  4. (c) It ensures transparency in financial administration: This is incorrect, as financial transparency is ensured by institutions like the Comptroller and Auditor General (CAG) and parliamentary oversight, not the Finance Commission.
  5. Hence, the correct answer is (d).


Q9. Who of the following shall causes every recommendation made by the Finance Commission to be laid before each House of the Parliament? I.A.S. (Pre) 2010

(a) The President of India 

(b) The Speaker of Lok Sabha 

(c) The Prime Minister of India 

(d) The Union Finance Minister 

Ans. (a) 

Exp:

  1. Under Article 281 of the Constitution of India, every recommendation made by the Finance Commission is submitted to the President, and it is the President who causes these recommendations, along with an explanatory memorandum on the action taken, to be laid before both Houses of Parliament.
  2. Thus, the correct answer is (a).


Q10. Consider the following statements and select the correct answer from the code given below: U.P.P.C.S. (Pre) (Re. Exam) 2015

Assertion (A): State Finance Commission is a Constitutional body. 

Reason (R) : Union Finance Commission cannot recommend financial assistance to Panchayats. 

Code : 

(a) Both (A) and (R) are true and (R) is the correct explanation of (A) 

(b) Both (A) and (R) are true, but (R) is not the correct explanation of (A). 

(c) (A) is true, but (R) is false. 

(d) (A) is false, but (R) is true. 

Ans. (c) 

Exp:

  1. Assertion (A): State Finance Commission is a Constitutional body. This statement is true, as under Article 243I, every State is required to constitute a State Finance Commission at regular intervals to review the financial position of Panchayats and make recommendations regarding devolution of funds and taxation powers to local bodies. Hence, it is a constitutional body created by the 73rd Constitutional Amendment Act, 1992.
  2. Reason (R): Union Finance Commission cannot recommend financial assistance to Panchayats. This statement is false, because under Article 280, the Union Finance Commission can recommend measures to supplement the resources of Panchayats and Municipalities through grants-in-aid and other fiscal transfers.
  3. Thus, (A) is true but (R) is false.
  4. Hence, the correct answer is (c).