GK Question

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The President specifies the terms of reference for the Finance Commission, which typically include criteria for ______ distribution of tax revenues.

  1. horizontal
  2. vertical
  3. both horizontal and vertical
  4. sectoral

Answer: both horizontal and vertical

Article 280(3): FC recommends: (a) Vertical devolution: share of Union taxes to States (e.g., 41% by 15th FC), (b) Horizontal devolution: distribution among States using criteria like population (1971/2011), area, forest cover, income distance, demographic performance. Balances equity (needier States get more) and efficiency (rewarding reforms).

Topic Finance Commission - Terms of Reference
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