16th Finance Commission:
Finance Minister Nirmala Sitharaman tabled the 16th Finance Commission (FC) report in Parliament on February 1, 2026, alongside the Union Budget. The government has accepted its key recommendation to maintain the states’ share in central taxes at 41% for the period of 2026-31.
- The states’ share in the divisible pool of central taxes remains unchanged at 41%, consistent with the 15th Finance Commission.
- Calculated after excluding cesses, surcharges, and the cost of collection from the Centre’s gross tax revenue.
- Ensures stability in resource transfer to states, maintaining the foundational framework of fiscal federalism.
- Based on per capita GSDP gap with top-3 states (avg. of 2018-19 & 2023-24, excluding 2020-21).
- New 10% weight to reward states for their economic output, calculated using the square root of GSDP.
- Now more comprehensive, considering increase in forest area (2015-23) and including open forests.
- Shift from Total Fertility Rate (TFR) to population growth between 1971-2011.
- Grants-in-Aid to States & Local Bodies (Total: ₹9.47 Lakh Crore)
- The Commission has streamlined grants, discontinuing revenue deficit, sector-specific, and state-specific grants.
- Local Body Grants (₹7,91,493 crore)
- Rural Local Bodies:₹4.35 lakh crore
- Urban Local Bodies:₹3.56 lakh crore.
- 80% Basic Grant (50% tied to water/sanitation) + 20% Performance Grant.
- Special Infrastructure Grant (₹56,100 cr):For wastewater management in cities (10-40 lakh population).
- Urbanisation Premium (₹10,000 cr):One-time grant for merging peri-urban areas and formulating rural-urban transition policies.
- Conditionality:Tied to timely State Finance Commissions, audited accounts, and proper constitution of local bodies.
- Corpus for State Disaster Relief & Management Funds (SDRF/SDMF).
- Centre-State Cost Sharing:90:10 for Northeastern & Himalayan states, 75:25 for all other states.
