The 16th Finance Commission, chaired by Dr Arvind Panagariya, on Monday submitted to President Draupadi Murmu its report on how the Centre’s divisible tax pool will be shared among the states for the period 2026–31. The commission was set up in January 2024 and tasked with determining the formula for distributing the Centre’s tax revenues to the states and allocating funds among them.
Under the 15th Finance Commission, the Centre shares 41% of its divisible pool of tax revenue with the states.
As per the terms of reference, the 16th Finance Commission was also required to examine grants-in-aid to states and the financial resources of panchayats and municipalities, based on recommendations from the respective State Finance Commissions. It also reviewed the existing arrangements for financing disaster management initiatives, particularly the funds constituted under the Disaster Management Act, 2005, and was asked to make suitable recommendations.
The Commission was initially required to submit its report by October 31, 2025, but its tenure was extended by a month. The report will be placed in the public domain once it is tabled in Parliament by the Union Finance Minister.
The Ministry of Finance, in a statement, said that during its tenure, the 16th Finance Commission analysed the finances of the Union and the states in detail, and prepared its report after wide-ranging consultations with the Union Government, state governments, local governments at various tiers, chairpersons and members of previous Finance Commissions, eminent academic institutions, multilateral organisations, the Commission’s Advisory Council and other domain experts. The report is presented in two volumes -- Volume I contains the recommendations as per the terms of reference, while Volume II includes the accompanying annexures.
The contents of the report are being closely awaited, especially as southern states have raised concerns over the parameters used to determine each state’s share. In the 15th Finance Commission, population carried a weightage of 27% — 17% based on the 1971 Census and 10% based on the 2011 Census.
Southern states have opposed the use of the 2011 Census for calculating their share, arguing that doing so penalises states that have successfully controlled population growth. They have instead sought exclusive reliance on the 1971 Census.
Under the 15th Finance Commission’s formula, the five southern states together received only 16% of the Centre’s devolved taxes, while Bihar and Uttar Pradesh accounted for 28%.