UPSC Prelims Practice Questions — Has the 16th Finance Commission sidelined the States?

Q1. Under which provision of the Constitution of India was the Sixteenth Finance Commission, which submitted its report on 1 February 2026, constituted?

  • A. Article 270
  • B. Article 275
  • C. Article 280
  • D. Article 282

Q2. With reference to the recommendations of the Sixteenth Finance Commission (2026-31) compared with those of the Fifteenth Finance Commission (2020-26), consider the following statements: 1. The vertical share of States in the divisible pool of central taxes has been retained at the same level as recommended by the 15th Finance Commission. 2. The criterion of 'tax and fiscal effort' used by the 15th Finance Commission has been retained by the 16th Finance Commission in its horizontal devolution formula. 3. 'Contribution to GDP' has been introduced as a new criterion in horizontal devolution with a weight of 10 per cent. Which of the statements given above is/are correct?

  1. The vertical share of States in the divisible pool of central taxes has been retained at the same level as recommended by the 15th Finance Commission.
  2. The criterion of 'tax and fiscal effort' used by the 15th Finance Commission has been retained by the 16th Finance Commission in its horizontal devolution formula.
  3. 'Contribution to GDP' has been introduced as a new criterion in horizontal devolution with a weight of 10 per cent.
  • A. 1 and 2 only
  • B. 1 and 3 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q3. How many criteria has the Sixteenth Finance Commission used in its horizontal devolution formula for distributing the States' share of central taxes among the States?

  • A. Four
  • B. Five
  • C. Six
  • D. Seven

Q4. In the horizontal devolution formula of the Sixteenth Finance Commission, the criterion of 'Income Distance' refers to which one of the following?

  • A. The difference between a State's per capita Gross State Domestic Product (GSDP) and the average per capita GSDP of the top three large States by per capita GSDP
  • B. The difference between a State's per capita income and the national average per capita Gross National Income
  • C. The gap between a State's per capita tax revenue and the average per capita tax revenue of all States
  • D. The shortfall of a State's Human Development Index from the highest-ranked State's HDI