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CSEET · Economic and Business Environment · Key Government Institutions

A State government complains that the Union's transfer of funds is not aligned with its needs. Which statement correctly describes the Finance Commission's role and the status of its recommendations?

The Finance Commission recommends how net tax proceeds are shared and the principles for grants-in-aid to States, but its recommendations are advisory, not binding. The Government lays the report with an explanatory memorandum before Parliament. GST rates are decided by the GST Council and audit is done by the CAG.

  1. AIt recommends the sharing of net tax proceeds and grants-in-aid principles; its recommendations are advisory, with the Government laying an explanatory memorandum before ParliamentCorrect
  2. BIts recommendations are binding on Parliament and cannot be altered
  3. CIt decides the rate of GST on goods and services for each State
  4. DIt audits the State's expenditure and reports to the Governor

Explanation

The Finance Commission recommends the distribution of net tax proceeds between the Union and States and the principles governing grants-in-aid. Its report is advisory, and the Government places it before Parliament with an action-taken memorandum. It is not binding, it does not fix GST rates (the GST Council does), and State audit is the CAG's work.

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