Article 280 and the Finance Commission: how it is constituted and what it recommends

Background

Article 280 of the Constitution requires the President, within two years from the commencement of the Constitution and thereafter at the expiration of every fifth year, or at such earlier time as the President considers necessary, to constitute a Finance Commission by order.
The Commission consists of a Chairman and four other members, all appointed by the President.
Its duty is to recommend the distribution between the Union and the States of the net proceeds of taxes that are to be, or may be, divided between them, and the allocation between the States of their respective shares.
It also recommends the principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India.
Article 280 further asks it to recommend the measures needed to augment the Consolidated Fund of a State so as to supplement the resources of the Panchayats and of the Municipalities in that State, on the basis of the recommendations made by the Finance Commission of the State.
Any other matter referred to the Commission by the President in the interests of sound finance also falls within its terms of reference, and the Commission determines its own procedure.
Under Article 281 the President must cause every recommendation of the Commission, together with an explanatory memorandum on the action taken on it, to be laid before each House of Parliament.
The Finance Commission (Miscellaneous Provisions) Act, 1951 fixes the qualifications: the Chairman is selected from persons who have had experience in public affairs, and the four other members from persons who are, have been or are qualified to be appointed as Judges of a High Court, or have special knowledge of the finances and accounts of Government, or have had wide experience in financial matters and in administration, or have special knowledge of economics.