Finance minister Nirmala Sitharaman, presenting the 16th Finance Commission report that determines tax revenue devolution between the Centre and the states for the fiscals 2026 to 2031 in the Lok Sabha, said the states would get Rs 1.4 trillion next fiscal as part of tax devolution.
The commission report was laid before the House before she presented the ninth consecutive the Budget on Sunday.
The minister said the government has accepted its recommendation of 41% devolution to the states. Rs 1.4 trillion has been assigned to states as the Finance Commission grants for FY27. The 16th FC’s recommendations would apply for a period of five years beginng on April 1, 2026.
The Finance Commission, a Constitutional body, provides the formula for this distribution of taxes and levies between the Centre and the states. Cesses and surcharges levied by the Centre are not part of the divisible pool.
The report was submitted by the commission, headed by former vice-chairman of Niti Aayog Arvind Panagariya, to the President Droupadi Murmu on November 17, 2025. The Commission was set up on December 31, 2023.
Led by Panagariya, the Finance Commission members included retired bureaucrat Annie George Mathew, economist Manoj Panda, SBI group chief economic advisor Soumya Kanti Ghosh, and RBI deputy governor T Rabi Sankar, and secretary to the Finance Commission Ritvik Pandey.
Apart from deciding on the Centre-states tax division, the 16th Commission was also tasked with recommending the principles that should govern the grants-in-aid transferred by the Centre to the states. It also recommended the measures needed to augment the funds of the states to supplement the resources of their panchayats and municipalities.