Question

What is the main function of State Finance Commission ?

Hint:

Think of the State Finance Commission as the "Finance Commission for the local bodies". Just as the Union Finance Commission decides the financial resource sharing between the Centre and the States, the State Finance Commission does the same between the State and its local bodies (Panchayats and Municipalities).

Answer 1

The main function of the State Finance Commission (SFC) is to review the financial position of the Panchayats and the Municipalities in a state and to make recommendations to the Governor about the principles that should govern the distribution of financial resources between the state government and these local bodies. 
Specifically, the SFC makes recommendations on: \[\begin{array}{rl} 1. & \text{Distribution of Taxes: The principles for the division and distribution of the net proceeds of taxes, duties, tolls, and fees levied by the state which are to be shared between the state and the local bodies.} \\ 2. & \text{Assignment of Taxes: The determination of the taxes, duties, tolls, and fees which may be assigned to, or appropriated by, the Panchayats and Municipalities.} \\ 3. & \text{Grants-in-Aid: The principles for providing grants-in-aid to the Panchayats and Municipalities from the Consolidated Fund of the State.} \\ 4. & \text{Improving Financial Position: Measures needed to improve the financial position of the local bodies.} \\ \end{array}\] 

In essence, the State Finance Commission's primary role is to ensure the financial viability and autonomy of local self-government institutions, as mandated by the 73rd and 74th Constitutional Amendments.