Official UPSC Format

Which of the following statements with regard to recommendations of the 15th Finance Commission of India are correct?
I. It has recommended grants of ₹4,800 crores from the year 2022–23 to the year 2025–26 for incentivizing States to enhance educational outcomes.
II. 45% of the net proceeds of Union taxes are to be shared with States.
III. ₹45,000 crores are to be kept as performance-based incentive for all States for carrying out agricultural reforms.
IV. It reintroduced tax effort criteria to reward fiscal performance.
Select the correct answer using the code given below.

1. I. It has recommended grants of ₹4,800 crores from the year 2022–23 to the year 2025–26 for incentivizing States to enhance educational outcomes.

2. II. 45% of the net proceeds of Union taxes are to be shared with States.

3. III. ₹45,000 crores are to be kept as performance-based incentive for all States for carrying out agricultural reforms.

4. IV. It reintroduced tax effort criteria to reward fiscal performance.

⚡ Quick Recall Snippet

The 15th Finance Commission altered fiscal federalism by recommending a 41% share of central taxes for states. It also introduced sector-specific performance grants, including ₹4,800 crores for education, ₹45,000 crores for agriculture, and rewarded states for 'tax effort'.

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Detailed Solution & Authority Citations

Correct Answer is Option C
According to the final report submitted by the 15th Finance Commission for the period 2021-26, the framework for devolution and sector-specific grants was heavily performance-based.
  • Statement I is Correct: The Commission specifically earmarked ₹4,800 crores as performance-based grants to incentivize states to improve educational outcomes.

  • Statement II is Incorrect: The Commission recommended that 41% of the divisible pool of taxes be shared with states (down from the 42% recommended by the 14th FC, adjusting 1% for the newly created UTs of J&K and Ladakh). It is definitely not 45%.

  • Statement III is Correct: A massive ₹45,000 crore performance-based incentive was provisioned for states that successfully implement sweeping agricultural reforms.

  • Statement IV is Correct: To promote fiscal discipline and revenue mobilization, the Commission reintroduced the 'tax effort' criterion (giving it a 2.5% weightage), rewarding states that generate higher tax revenue relative to their GSDP.

    • 🚨 The Examiner's Trap

    Statement II is a classic numeric trap. Students often remember the 14th FC's massive jump to 42%, and might confuse the 15th FC's slight reduction to 41% with other data points (or randomly guess 45%).

    Active Recall Flashcard

    Tap to Flip

    What percentage of the divisible pool of taxes did the 15th Finance Commission recommend for devolution to the states?

    41% (adjusted down from 42% due to the creation of J&K and Ladakh UTs).

    Concept Flow Mapping

    15th Finance Commission
    Recommended Tax Devolution Of
    41%
    15th Finance Commission
    Reintroduced
    Tax Effort Criteria
    15th Finance Commission
    Allocated Grants For
    Agricultural Reforms

    Logic Quest

    "Why did the 15th FC reduce the tax devolution from 42% (under the 14th FC) to 41%?"

    Not analyzing core concepts like Fiscal Federalism and Devolution Metrics through the lens of Previous Year Questions is a serious miss-out. This PYQ engine is specifically designed to help you decode the examiner's mindset and master highly probable Economy questions for your upcoming Prelims.