UPSC CSE Prelims
Finance Commission Previous Year Questions (PYQs)
Practice solved questions for Finance Commission with detailed step-by-step solutions, key insights, and trend analysis for UPSC CSE PRELIMS.
Solved Previous Year Questions
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Which of the following statements with regard to recommendations of the 15th Finance Commission of India are correct?
I. It has recommended grants of ₹4,800 crores from the year 2022–23 to the year 2025–26 for incentivizing States to enhance educational outcomes.
II. 45% of the net proceeds of Union taxes are to be shared with States.
III. ₹45,000 crores are to be kept as performance-based incentive for all States for carrying out agricultural reforms.
IV. It reintroduced tax effort criteria to reward fiscal performance.
Select the correct answer using the code given below.
Detailed Explanation:
Correct Answer: ✅ Option 3 (I, III and IV)
The Fifteenth Finance Commission recommended several performance-based grants and incentives to improve governance, education, agriculture, and fiscal discipline among States.
✅ Statement I is Correct: The Commission recommended ₹4,800 crore during 2022–23 to 2025–26 to incentivize States for improving educational outcomes.
❌ Statement II is Incorrect: The Commission recommended that 41% of the net proceeds of Union taxes be devolved to States, not 45%.
✅ Statement III is Correct: A ₹45,000 crore performance-based incentive fund was proposed to encourage States to undertake agricultural reforms.
✅ Statement IV is Correct: The Commission reintroduced the Tax Effort Criterion to reward States that mobilize their own tax revenues more effectively relative to their economic capacity.
Short Notes: Fifteenth Finance Commission
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The 15th Finance Commission was chaired by N. K. Singh.
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Its recommendations covered the period 2021–26.
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It recommended 41% tax devolution to States.
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Introduced performance-based incentives in sectors like education, agriculture, and power reforms.
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Recommended ₹45,000 crore for agricultural reform-linked incentives.
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Reintroduced the Tax Effort criterion in the devolution formula.
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Finance Commissions are constituted under Article 280 of the Indian Constitution.
With Reference to the Fourteenth Finance Commission, which of the following statements is/are correct?
- It has increased the share of States in the central divisible pool from 32 per cent to 42 per cent
- It has made recommendations concerning sector-specific grants
Detailed Explanation:
✅ Statement 1 – Correct: The 14th Finance Commission (chaired by Dr. Y.V. Reddy) increased the share of States in the central divisible pool from 32% to 42%, a historic jump aimed at enhancing fiscal federalism.
❌ Statement 2 – Incorrect: The Commission moved away from recommending sector-specific grants to preserve state fiscal autonomy. It provided only grants for local bodies and disaster management, avoiding tied grants that restrict states' spending flexibility.
Which of the following is /are among the noticeable features of the recommendations of the Thirteenth Finance Commission?
- A design for the Goods and Services Tax, and a compensation package linked to adherence to the proposed design
- A design for the creation of lakhs of jobs in the next ten years in consonance with India’s demographic dividend
- Devolution of a specified share of central taxes to local bodies as grants
Select the correct answer using the codes given below:
Detailed Explanation:
✅ Statement 1 – Correct: The Thirteenth Finance Commission (2010-2015) recommended a detailed roadmap for GST implementation including design features and a compensation mechanism for states transitioning to the new tax regime.
❌ Statement 2 – Incorrect: Job creation falls outside the mandate of Finance Commissions, which are constitutionally tasked with recommending tax devolution and grants-in-aid, not employment generation policies.
✅ Statement 3 – Correct: The Commission recommended grants to local bodies (Panchayats and Municipalities) as a specified share of central taxes, amounting to ₹87,519 crore for the 2010-15 period.
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