The 16th Finance Commission is anticipated to be established by the Indian government this year. The Commission's main goal is to recommend a suitable ratio for allocating tax revenue to the federal government and the states during the subsequent five years, starting on April 1, 2026. Furthermore, the government is now finalising the composition of the commission and its mandate, according to PTI.

A constitutional authority called the Finance Commission makes recommendations about the financial ties between the federal government and the states. On November 9, 2020, the former Finance Commission turned in its report covering the years 2021–2022 to 2025–2026. The tax devolution ratio should remain at 42%, as suggested by the 14th Commission, according to the 15th Commission, chaired by NK Singh.

State tax revenue will increase by 42% from 2021–2022 to 2025–2026 as a result of the central government's acceptance of this study.

The recommendations of the 15th Finance Commission also included a budget deficit, a debt path for the Union and the States, and increased borrowing capacity for the States based on their success in reforming the power sector. With the goal of bringing down the fiscal deficit to 4.5% of GDP by the fiscal year 2025–2026, the government has established a glide path for fiscal consolidation. The estimated deficit for the current fiscal year is 5.9% of GDP, which is less than the 6.4% deficit for the prior fiscal year. The Commission's recommendations will be crucial in helping India meet its goals for fiscal reduction and maintaining the stability of the economy as a whole.

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