The union cabinet chaired by prime minister Narendra Modi has approved the setting up of the 15th Finance Commission.

Setting up the Finance Commission is a Constitutional obligation. Article 280(1) of the Constitution lays down that a Finance Commission (FC) should be constituted "...within two years from the commencement of this Constitution and thereafter at the expiration of every fifth year or at such earlier time as the President considers necessary...".

The practice has generally been to set up next Finance Commission within five years of the date of setting up of the previous Finance Commission.

Fourteen Finance Commissions have been constituted in the past. The 14thFinance Commission was set up on January 2, 2013 to make recommendations covering the period of five years commencing on April 1, 2015. The Commission submitted its Report on December 15, 2014. The recommendations of the 14thFinance Commission are valid upto the financial year 2019-20.

Under the Constitution, the main responsibilities of a Finance Commission are the following:

1. The distribution between the Union and the States of the net proceeds of taxes which are to be divided between them and the allocation between the States of the respective shares of such proceeds.

2. Determination of principles and quantum of grants-in-aid to States which are in need of such assistance.

3. Measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats and Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State.