UPSC CSE Prelims 2003

Correct Option (b):

The Finance Commission is a constitutional body constituted by the President of India under Article 280 of the Constitution. Its primary functions include:

• Recommending the distribution of the net proceeds of taxes between the Union and the States (vertical devolution) and the allocation of shares among the States (horizontal devolution). This aligns with statement 2.
• Recommending the principles that should govern the grants-in-aid to the States by the Union out of the Consolidated Fund of India, under Article 275. This aligns with statement 3.
• It also advises on any other financial matter referred to it by the President in the interests of sound finance.

Incorrect Options:

• Statement 1 is incorrect. The Finance Commission does not authorize the withdrawal of money from the Consolidated Fund of India. This power is vested in the Parliament, which approves appropriations through an Appropriation Act, based on the Union Budget.
• Statement 4 is incorrect. The function of supervising and reporting on whether the Union and State governments are levying taxes in accordance with budgetary provisions falls under the purview of the Comptroller and Auditor General of India (CAG), as part of its audit functions. The Finance Commission's role is recommendatory regarding financial distribution and grants, not supervisory over tax collection compliance.