All eyes on the Finance Commission

Published: December 13, 2014 10:21:06 PM

The 14th Finance Commission is slated to submit its report on Monday.

The 14th Finance Commission is slated to submit its report on Monday. With majority of the states, especially the BJP-ruled ones, asking for an increase in the states’ share of central taxes to 50% from the current 32%, and the NDA government at the Centre in favour of allowing freedom to the states in deciding where they want to spend the money allocated to them, the report is keenly awaited as it would set the roadmap for the next five years.

While the Goods and Services Tax (GST)—Prime Minister Narendra Modi has fixed April 2016 as the deadline for its implementation—will change the indirect tax collection dynamics of both the Centre and the states, scrapping of the Planning Commission has also added another dimension to the way schemes would be formulated and the funds would be distributed among the states when growth is getting more traction from the voters than dole politics.

The Finance Commission recommendations are expected to bring clarity on these issues. The previous commission based its calculations of tax devolution based on four criteria—population, area, fiscal capacity distance and fiscal discipline. Over the years, while the share of middle-income states has fallen slightly, the share of low-income states has increased largely at the cost of high income states.

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