16th Finance Commission Recommendations for 2026-31
Why in the news
The 16th Finance Commission submitted its 2026-31 report, adding a GDP-contribution criterion and tighter fiscal rules for States.
Key facts
- Vertical devolution: States’ share unchanged at 41%.
- Horizontal criterion: Contribution to GDP, 10% weight.
- Fiscal deficit of States capped at 3% of GSDP; off-budget borrowings stop, so all liabilities show in budgets.
- Privatisation of DISCOMs recommended to ease debt.
- ₹9.47 lakh crore for local bodies and disaster management; state-specific and sector-specific grants discontinued.
- Forest incentives reward an increase in forest cover.
States’ asks versus outcome
| Issue | States wanted | Outcome |
|---|---|---|
| Tax share | Raise 41% to 50% | Kept at 41% |
| Performance reward | Credit for GDP contribution | 10% weight |
| Cess and surcharge | Include in divisible pool | No change stated |
| Grants | Flexible, untied | State- and sector-specific grants dropped |
About the Finance Commission
- Constitutional body under Article 280.
- Vertical: Union-State split; horizontal: split among States.
- Divisible pool: corporation tax, personal income tax, CGST, Centre’s share of IGST.
Exam angle
- Article 280; 41%; 10% weight; 3% of GSDP.