The Union Cabinet on Wednesday approved the constitution of the 15th Finance Commission, whose recommendations have to be in place by April 1, 2020, and also decided to finalise the next Commission's terms of reference, Finance Minister Arun Jaitley said here.
The appointment of a new Finance Commission (FC), to recommend on the sharing of revenue between the Centre and the states for the five - year period after the 14th FC's recommendations expire on March 31, 2020, comes in the backdrop of a radical overhaul of the indirect tax regime by way of the Goods and Services Tax (GST) implemented from July.
"It normally takes around two years for a Finance Commission to complete its work, and for the 15th one, its recommendations need to be in place by the 1st of April, 2020, " Jaitley told reporters following the cabinet meeting.
"Today (Wednesday) an in - principle decision has been taken and the members (15th FC) will be appointed very soon, " he said in response to a query.
The Finance Minister said the while there is a continuity in the expenditure pattern of the Centre and the states, the GST was a new element in the revenue situation.
"The impact of GST on revenue will have to be studied by the the new Finance Commission.
After GST, the indirect tax regime is no longer the same pattern for both the Centre and states, " he added.
The 14th Finance Commission recommended transfer of a much bigger share of central taxes to states, increasing it by 10 percentage points to a handsome 42 per cent, which was accepted by the Centre.
In the other major economic decisions taken by the cabinet on Wednesday was to bring in certain changes to the Insolvency and Bankruptcy Code, which are to be introduced through an Ordinance.
Jaitley said the cabinet has forwarded the modification proposals for the President's assent and, as such, could not be revealed at this time.