Finance Commission MCQ Quiz - Objective Question with Answer for Finance Commission - Download Free PDF

Last updated on Jun 11, 2025

Under Article 280 of the Indian Constitution to define the financial relations between the central government of India and the individual state governments, Finance Commission is a commission that is periodically constituted by the President of India. The First Commission was established in 1951. According to the constitution, the commission is appointed every 5 years and consists of a chairman and 4 other members. The Finance Commission topic is crucial for all Indian competitive exams, including UPSC, SSC, PSC, Railway, and Banking. We should look at the question carefully before deciding which of the available options best describes the Finance Commission of India. Once we've narrowed down our choice, it will become easy to choose the correct answer. To boost our performance, we must prepare by referring to some standard textbooks. We should make our own handwritten notes from NCERT books, and to attempt questions in some premier exams we can also refer to Indian Polity by M. Laxmikanth along with that regular and cyclic revision of the topics are compulsory.

Latest Finance Commission MCQ Objective Questions

Finance Commission Question 1:

Who among the following has not served as the Chairman of the State Finance Commission of Uttar Pradesh?

  1. Anand Mishra
  2. Bhal Chandra Shukla
  3. T. N. Dhar
  4. Satish Mahana
  5. None of the above

Answer (Detailed Solution Below)

Option 4 : Satish Mahana

Finance Commission Question 1 Detailed Solution

The correct answer is Satish Mahana.

Key Points

  • Under Article 243-I of the Constitution of India, the governor of a state is required to constitute a State Finance Commission every five years. 
  • A State Finance Commission allocates resources of a state to its Panchayati Raj institutions at all three levels in terms of taxes, duties, and levies to be collected by the state and the local bodies. 
  • A State Finance Commission reviews the financial position of the panchayats in a state and makes recommendations to the Governor.
  • The Fifth Finance Commission is under operation in Uttar Pradesh.
  • The First State Finance Commission in Uttar Pradesh was formed in 1994.
  • Uttar Pradesh State Finance Commission
Uttar Pradesh State Finance Commission Chairman
(a)  First Bhal Chandra Shukla
(b) Second T.N. Dhar
(c) Third Syed Ali Tahir Rizvi
(d) Fourth Atul Kumar Gupta
(e) Fifth Anand Mishra
 

Finance Commission Question 2:

Which of the following is NOT an example of the indirect form of taxation?

  1. Sales tax
  2. Custom Duty
  3. Excise Duty
  4. Income Tax
  5. None of the above

Answer (Detailed Solution Below)

Option 4 : Income Tax

Finance Commission Question 2 Detailed Solution

  • Income Tax is not an example of indirect tax, it comes under the direct tax.
  • Indirect tax is a type of tax collected by the government from an intermediary and are not directly transferred to the government.
  • Examples of Indirect tax are service tax, sales tax etc.
  • A direct tax is borne directly by the entity that pays it.
  • Examples of direct taxes are income tax, corporation tax etc.

Shortcut Trick

  • Trick –– "Wepro, co, in (Direct Taxes)"
    • We- Wealth Tax
    • Pro- Property Tax
    • Co- Corporate Tax
    • In- Income Tax
  • Trick –– "Excuse Me (Indirect Taxes)"
    • Ex- Excise tax
    • Cu- Custom tax
    • Se- Service tax
    • M- Market tax/vat
    • E- Entertainment tax

Finance Commission Question 3:

Who is the current (7th) Chairman of the Kerala State Finance Commission, appointed on 21st October 2024?

  1. Dr. Abhijith P. Nair
  2. Dr. R. Ramachandran
  3. Dr. K. N. Harilal
  4. Dr. T. M. Thomas Isaac

Answer (Detailed Solution Below)

Option 3 : Dr. K. N. Harilal

Finance Commission Question 3 Detailed Solution

✅ Answer:  Dr. K. N. Harilal
Explanation:
Dr. K. N. Harilal was appointed as the Chairman of the 7th Kerala State Finance Commission on 21st October 2024. He is a noted economist and a retired professor from the Centre for Development Studies (CDS), Thiruvananthapuram.

Key Points

  • Commission: Kerala State Finance Commission (7th)
  • Position: Chairman 
  • Name: Dr. K. N. Harilal
  • Appointment Date: 21 October 2024
  • Background: Former member of Kerala State Planning Board
  • Academic: Professor at CDS, expert in development economics
  • Related Info: He is the elder brother of Kerala Finance Minister K. N. Balagopal

Additional Information

  • The Kerala State Finance Commission is a constitutional body constituted every five years under Article 243-I of the Constitution of India.
  • Its major role is to recommend distribution of financial resources between the State Government and the Panchayati Raj Institutions (PRIs).
  • Dr. K. N. Harilal has published extensively on decentralisation, globalisation, and public finance.

Finance Commission Question 4:

The chairman of the 14th Finance Commission was

  1. Raja J. Cheliah
  2. Y.V. Reddy
  3. T.S. Papola
  4. Y.K. Alagh

Answer (Detailed Solution Below)

Option 2 : Y.V. Reddy

Finance Commission Question 4 Detailed Solution

The correct answer is Y.V. Reddy.

Key Points

  • Y.V. Reddy served as the chairman of the 14th Finance Commission of India.
  • The 14th Finance Commission was constituted by the President of India in January 2013 and submitted its report in December 2014.
  • Y.V. Reddy is a renowned economist and civil servant who previously served as the Governor of the Reserve Bank of India from 2003 to 2008.
  • The 14th Finance Commission recommended an increase in the tax devolution to the states from 32% to 42% of the divisible pool, focusing on fiscal federalism.

Additional Information

  • Finance Commission:
    • The Finance Commission is a constitutional body established under Article 280 of the Indian Constitution.
    • Its primary role is to make recommendations regarding the distribution of financial resources between the central government and the states.
    • The Commission is constituted every five years by the President of India, and it provides recommendations on tax devolution, grants-in-aid, and other fiscal matters.

Finance Commission Question 5:

The Finance Commission is constituted by:

  1. Governor of Reserve Bank of India
  2. President of India
  3. Prime Minister of India
  4. Union Minister of Finance

Answer (Detailed Solution Below)

Option 2 : President of India

Finance Commission Question 5 Detailed Solution

The correct answer is President of India.

Key Points

  • The Finance Commission is constituted by the President of India under Article 280 of the Constitution of India.
  • It is formed to define the financial relations between the central government and the state governments.
  • The Finance Commission is a quasi-judicial body tasked with recommending the distribution of tax revenues between the Union and the States.
  • The Commission submits its recommendations to the President, who then places the report before Parliament.
  • Members of the Finance Commission are selected based on their expertise in public affairs, finance, and economics.

Additional Information

  • Article 280:
    • This article of the Indian Constitution mandates the creation of a Finance Commission every five years.
    • The Commission is responsible for advising on the distribution of tax revenues between the Union and States.
  • Functions of the Finance Commission:
    • It recommends the division of net proceeds of taxes between the Centre and the States.
    • It advises on the allocation of funds among states based on their needs.
    • The Commission also suggests measures to improve the financial status of panchayats and municipalities.
  • Composition of the Finance Commission:
    • The Commission consists of a chairman and four other members appointed by the President.
    • Members should possess expertise in finance, economics, and public administration.
  • Recent Finance Commission:
    • The 15th Finance Commission, chaired by N.K. Singh, submitted its report for the period 2021-26.
    • Key recommendations included the vertical tax devolution of 41% for states.

Top Finance Commission MCQ Objective Questions

Which of the following is constituted under Article 280 of the Constitution of India?

  1. Advocate General
  2. Central Vigilance Commission
  3. Finance Commission
  4. National Commission for Women

Answer (Detailed Solution Below)

Option 3 : Finance Commission

Finance Commission Question 6 Detailed Solution

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The correct answer is Finance Commission.

Key Points

  • The Finance Commission in India is constituted by the President under article 280 of the Constitution.
  • The first finance commission was constituted in 1951.
  • Finance Commission is a constitutional body for the purpose of allocation of certain revenue resources between the Union and the State Governments.
  • The finance commission is appointed every five years.
  • The President lays the reports of the Finance commission before both the Houses of the Parliament.
  • The finance commission recommends to the President relating to the distribution of the net taxes to be shared between the centre and the states.
  • The finance commission consists of a Chairman and four members.

Additional Information

  • The 14th Finance Commission was headed by YV Reddy.
  • The 15th Finance Commission is headed by Nand Kishore Singh.
  • The Finance Commission of India was established in 1951.
  • The first chairman of the Finance Commission was KC Neogy.

Which of the following is NOT an example of the indirect form of taxation?

  1. Sales tax
  2. Custom Duty
  3. Excise Duty
  4. Income Tax

Answer (Detailed Solution Below)

Option 4 : Income Tax

Finance Commission Question 7 Detailed Solution

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  • Income Tax is not an example of indirect tax, it comes under the direct tax.
  • Indirect tax is a type of tax collected by the government from an intermediary and are not directly transferred to the government.
  • Examples of Indirect tax are service tax, sales tax etc.
  • A direct tax is borne directly by the entity that pays it.
  • Examples of direct taxes are income tax, corporation tax etc.

Shortcut Trick

  • Trick –– "Wepro, co, in (Direct Taxes)"
    • We- Wealth Tax
    • Pro- Property Tax
    • Co- Corporate Tax
    • In- Income Tax
  • Trick –– "Excuse Me (Indirect Taxes)"
    • Ex- Excise tax
    • Cu- Custom tax
    • Se- Service tax
    • M- Market tax/vat
    • E- Entertainment tax

The Planning Commission was set up by the Government of India in the year:

  1. 1948
  2. 1950
  3. 1949
  4. 1951

Answer (Detailed Solution Below)

Option 2 : 1950

Finance Commission Question 8 Detailed Solution

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The correct answer is 1950.

Important Points

  • The Planning Commission was replaced by the NITI Aayog.
  • It was established on 15 March 1950, with Prime Minister Jawaharlal Nehru as the chairman.
  • Planning Commission Functions:
    • Formulate and draft a Plan for the most balanced and effective usage of the country’s resources.
    • Make and define the stages of an evaluation of the capital, material, and human resources of the nation, including technical personnel, and study the possibilities of enhancing these resources for building up the nation.
    • Determine and indicate the factors that the kind of machinery required for obtaining the successful execution of each stage of the Plan in all its aspects.

Key Points

  • The first Five-year Plan was launched in 1951.
  • The present Chairman of NITI Aayog – Prime Minister Narendra Modi.

Article 280 of the Indian Constitution lays down the establishment of the

  1. Planning Commission
  2. Inter-State Council
  3. River Waters Tribunal
  4. Finance Commission

Answer (Detailed Solution Below)

Option 4 : Finance Commission

Finance Commission Question 9 Detailed Solution

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The correct answer is the Finance Commission.

Key Points

  • According to Article 280, the Finance Commission is established for a period of 5 years.
  • The Finance Commission is a 'constitutional body' constituted by the President of India which gives its suggestion to the President on the states' share in the taxes of the Center
  • Finance Commission is constituted by the President for a period of 5 years.

Additional Information

  • The 14th Finance Commission was headed by Y. V. Reddy.
  • The 15th Finance Commission is headed by Nand Kishore Singh.
  • The Finance Commission of India was established in 1951.
  • The first chairman of the Finance Commission was K. C. Neogy.

The State Finance Commission is a

  1. Legal body
  2. Non-statutory body
  3. Constitutional body
  4. None of the above

Answer (Detailed Solution Below)

Option 3 : Constitutional body

Finance Commission Question 10 Detailed Solution

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The correct answer is Constitutional body.

Key Points

  • The State Finance Commission is a Constitutional Body, as it is formed under the 73rd Constitutional Amendment Act 1992.
  • Under Article 280, the State Finance Commission was established in all the states of India from 1993 on the lines of the Finance Commission of the Center.
  • Objectives: To review the financial status of the Panchayats.
  • According to Article 243 I of the Indian Constitution, the State Finance Commission is appointed by the Governor for a period of 5 years.
  • The Governor also appoints the other members (maximum 4) for the commission.

Important Points

  • Grounds of Recommendations:
    • Allocation of net income of taxes, duties, tolls, and fees levied by the State between the Panchayats and the State.
      • It can be spent or allocated at different levels of the panchayat.
    • Determining how many taxes, fees, tolls, and charges may be assigned to panchayats.
    • Grant-in-aid to Panchayats.
  • Functions of the Commission:
    • Reviewing the economic status of various Panchayati Raj Institutions and Municipal Bodies located in the state.
    • To take various steps to improve the financial condition of various municipal bodies and Panchayati State institutions located in the state.
    • Allocation of funds from the Consolidated Fund of the State to various Panchayati Raj Institutions and Municipal Bodies located in the State.
    • To act as an intermediary between the Central and State Governments about financial issues.
    • Utilizing the funds provided by the Central Government to the State Government.

Additional Information

  • Finance Commission:
    • Under Article 280 of the Constitution, the President of India must set up a Finance Commission every five years or earlier.
    • The Finance Commission is a constitutional body, which lays down laws and formulas for the distribution of income derived from tax between the Center and the States and between the States following the constitutional system and current requirements.
    • The 15th Finance Commission was constituted by the President of India in November 2017 under the chairmanship of N.K. Singh.
    • Its recommendations will be valid for a period of five years from the year 2021-22 to 2025-26.

Who determines the centre - state financial relations from the following?

  1. Ministry of Finance
  2. National Development Council
  3. Planning Commission
  4. Finance Commission

Answer (Detailed Solution Below)

Option 4 : Finance Commission

Finance Commission Question 11 Detailed Solution

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The correct answer is the Finance Commission.

Key Points

  • Article 280 of the Indian Constitution provides for a Finance Commission as a quasi-judicial body.
  • It is constituted by the President of India every fifth year or at such an earlier time as he considers necessary.
  • It is set up to define the financial relations between the central government of India and the individual state governments.
  • It is required to make recommendations to the President of India on the following matters - 
    • The distribution of the net process of taxes to be shared between centers and the states and the allocation between the states of the respective shares of such proceeds.
    • the principle that should govern grants-in-aid to the states by the Centre.
    • The measures needed to Consolidated Fund of State to supplement the resource of the panchayats and the municipalities on the basis of the recommendation of the State Finance Commission.
    • Any other matter referred by the resident in the interest of sound finance.
  • The Finance Commission consists of a chairman and four other members to be appointed by the President.
    • They hold office for such a period as specified by the President in his order.
    • They are eligible for reappointment.

The Finance Commission of India submits its report to ________.

  1. The head of NITI Ayog
  2. The Finance minister of India
  3. The President of India
  4. The Prime minister of India

Answer (Detailed Solution Below)

Option 3 : The President of India

Finance Commission Question 12 Detailed Solution

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The correct answer is The President of India.Key Points

  • The Finance Commission of India is a constitutional body that is set up under Article 280 of the Indian Constitution.
  • Its primary responsibility is to recommend the distribution of tax revenues between the central and state governments. 
  • The Finance Commission submits its report to the President of India, who is the head of the state and represents the country internationally.
  • The President of India appoints the members of the Finance Commission, and their recommendations are binding on the government.
  • The Finance Commission's report is an essential document that guides the allocation of resources between the center and the states.

Additional Information

  • NITI Ayog is a policy think tank of the Government of India that replaced the Planning Commission.
  • It is responsible for providing strategic and technical advice to the government on various policy matters.
  • The Finance Minister of India is responsible for managing the finances of the government, including taxation, expenditure, and borrowing.
  • The President of India is the head of the state and the commander-in-chief of the armed forces.
  • The President is elected by an electoral college and holds office for a term of five years.
  • The President has the power to appoint various constitutional bodies and make appointments to various positions in the government.

The first Finance Commission of India was set up in the year:

  1. 1956
  2. 1965
  3. 1951
  4. 1948

Answer (Detailed Solution Below)

Option 3 : 1951

Finance Commission Question 13 Detailed Solution

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The correct answer is 1951.

Key Points

  • Finance Commission is a Constitutional body that defines the financial relationship between the Central Government and the State Government.
  • The first Finance Commission came into existence on 22nd November 1951 and its Chairman was Kshitish Chandra Neogy.
  • The headquarters of the Finance Commission is in New Delhi.
  • Nand Kishore Singh is the Chairman of the 15th Finance Commission (February 2021) preceded by Dr. Yaga Venugopal Reddy.
  • Dr. Arvind Panagariya is the current chairman of SIXTEENTH FINANCE COMMISSION OF INDIA
  • Arvind Mehta is the Secretary of the current Finance Commission. (February 2021)

Additional Information

  • The President of India constitutes the Finance Commission every five years which consists of a chairman and four other members.
  • Article 280 of the Constitution of India deals with the Finance Commission and Article 243I deals with the State Finance Commission.
  • The bodies which are mentioned in the Indian Constitution and are considered more powerful and Independent are known as Constitutional bodies, and those which are not mentioned in the Constitution are known as Non-Constitutional bodies. Finance Commission is a Constitutional body.
  • Governor constitutes Finance Commission every five years to review the financial position of Panchayats and Municipalities.

Which of the following statements is/are correct regarding the Finance Commission of India?

A. The Finance Commission consist of a Chairman and four other members.

B. The recommendations made by the Finance Commission are binding on the government and the government needs to grant funds according to the advice of the Commission,

C. Article 280 of the Indian Constitution talks about the recommendations of the Finance Commission.

  1. A and B only
  2. A, B and C
  3. A only
  4. B and C only

Answer (Detailed Solution Below)

Option 3 : A only

Finance Commission Question 14 Detailed Solution

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The correct answer is A only.

Key Points

  • The correct answer is option 3 (A only).
  •  The Finance Commission of India is a Constitutional body established under Article 280 of the Indian Constitution.
  • The Commission consists of a Chairman and four other members appointed by the President of India.
  •  The recommendations made by the Finance Commission are advisory in nature and not binding on the government.
  • The government may accept or reject the recommendations.
  •  The Commission recommends the distribution of taxes between the Centre and the States, grants-in-aid to the States, and other fiscal matters.
  •  The Finance Commission is constituted every five years.

Additional Information

  • The President of India constitutes the Finance Commission every 5 years
  • The finance commission is a constitutional body mandated by article 280 of the constitution
  • The recommendations made by the Finance Commission are of an advisory nature only and therefore, not binding upon the government.
  • It submits its report to the President of India.
  • The first Finance Commission was constituted in 1951.
  • The eligibility of members of the Finance Commission is determined by the Parliament of India. 
  • Chairman of the Finance Commission submits his report to the President of India
  • CompositionChairman and 4 members

With reference to the Union Finance Commission, which of the following statement/s is/are correct?

(1) Finance Commission has a Chairman and six members.

(2) It submits its report to the NITI Aayog.

Select the correct answer using the code given below- 

  1. Both 1 and 2
  2. Only 2
  3. Neither 1 nor 2
  4. Only 1

Answer (Detailed Solution Below)

Option 3 : Neither 1 nor 2

Finance Commission Question 15 Detailed Solution

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The correct answer is Neither 1 nor 2.

Key PointsUnion Finance Commission

  • Finance Commission is a Constitutional body that defines the financial relationship between the Central Government and the State Government.
  • The first Finance Commission came into existence on 22nd November 1951 and its Chairman was Kshitish Chandra Neogy.
  • The headquarters of the Finance Commission is in New Delhi.
  • Article 280 of the Constitution of India deals with the Finance Commission and Article 243I deals with the State Finance Commission.
  • The President of India constitutes the Finance Commission every five years.
  • Composition of Finance Commission: Chairman and 4 membersHence statement 1 is incorrect.
  • The eligibility of members of the Finance Commission is determined by the Parliament of India.
  • The constitution authorizes the parliament to determine the qualification of members of the commission and the manner in which they should be selected.
  • The commission submits its report to the president. Hence statement 2 is incorrect.
  • The recommendations of the finance commission are only of advisory nature and hence, not binding on the government.
  • The governor constitutes Finance Commission every five years to review the financial position of Panchayats and Municipalities.
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