Q. Consider the following statements:
Statement I: The State Finance Commission is required to review the financial position of municipalities every five years and recommend principles for sharing taxes between the state and municipalities.
Statement II: The Central Finance Commission directly allocates funds from the Consolidated Fund of India to municipalities based on urban population.
Which one of the following is correct?

[A] Both Statement I and Statement II are correct, and Statement II is the correct explanation of Statement I

[B] Both Statement I and Statement II are correct, but Statement II is not the correct explanation of Statement I

[C] Statement I is correct, but Statement II is incorrect

[D] Statement I is incorrect, but Statement II is correct

Answer: C
Notes:

Explanation:

  • The State Finance Commission, constituted every five years, reviews the financial position of municipalities and makes recommendations on the sharing of taxes, grants, and other financial matters.
  • The Central Finance Commission does not directly allocate funds to municipalities; instead, it recommends measures to augment the Consolidated Fund of a state, based on the recommendations of the State Finance Commission.

Source: Laxmikant (Polity)

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