 Finance commission. It is an important organization in a federal setup like India. But why is it so important? Now let's consider a joint family setup. If the patriarch of the family kicks the bucket without writing a will, what will happen? It will lead to chaos, right? Everyone will fight over money. This may happen even in a small family. Likewise, in India, if there are no proper set of guidelines for distribution of funds between sent and state, then our country might balkanize. So to prevent this from happening, we have our finance commission. So the finance commission helps in a tax devolution process. Now let's start with what is tax devolution? Tax devolution is nothing but a portion of net proceeds of the center taxes that are awarded to the states. In simple words, it is an amount of money that are given to states from the center's tax and duties. C tax devolution is one of the core tasks of 15th finance commission under article 280, class 3 of the Indian constitution. As we all know, article 280 is about the finance commission. So what does this tell you? See, finance commission is a constitutional body. Now coming to the class 3 of article 280, it says that it shall be the duty of the commission to make recommendations to the president. And the recommendations are regarding, first one, the distribution between the union and the states of the net proceeds of taxes and the allocation between the states of the respective shares of such proceeds. So this covers vertical devolution, which is distribution between center and states. And it also covers horizontal devolution, which is distribution between the states. Secondly, the finance commission recommend about the principles that should govern the grant in aid of the revenues of the states out of Consolidate Fund of India. Thirdly, finance commission recommends the measures needed to augment the Consolidated Fund of State to supplement the resources of the panzites in the state. Fourthly, finance commission makes recommendations regarding the measures needed to augment the Consolidated Fund of State to supplement the resources of the municipalities in the state also. And finally, they will make recommendations on any other matter referred by the president in the interests of sound finance. Now with this information, let's move on to see the recommendations of the 15th finance commission regarding tax devolution. See, in order to maintain predictability and stability of resources, 15th finance commission has recommended maintaining the vertical devolution at 41 percentage. This means that the share of states in the center tax is recommended to be 41 percentage. And this is for the period of 2021 to 2026. This is less than the 42 percentage share recommended by 14th finance commission for 2015 to 2020 period. See, this 41 percentage recommended in 15th finance commission amounts to 42.2 lakh crore for 2021 to 2026 period. Also note that the adjustment of one percentage is provided for the newly formed union territories of Jammu and Kashmir and Ladakh. And this one percentage is given from the resources of the center. This is all about vertical devolution. Now coming to horizontal devolution, that is the distribution between the states. See, the distribution between states are made based on certain criteria. And this table here shows the criteria used by the finance commission to determine each state's shares in central taxes. And the weight assigned to each criterion. See, three criteria are included in 15th finance commission, which is not in 14th finance commission. They are first one, forest and ecology. Note that in the 14th finance commission, it was forest cover but not forest and ecology. Here, this is one criteria. And second criteria, which are included in 15th finance commission that was not in 14th finance commission was tax and fiscal efforts. And the third one, demographic performance. Just note the difference here. See, all these six criteria forms basis of tax devolution among states. So, this means that the horizontal tax devolution depends on, firstly, population of the state. Here, population is based on 2011 census. And the weightage for this criteria is 15 percentage. Secondly, area of states. Here, the weightage is also 15 percentage. Thirdly, forest and ecology. And this is arrived at by calculating the share of the dense forest of each state in the total dense forest of all the states. And here, the weightage is 10 percentage. Fourthly, income distance. This is the distance of your state's income from the state with highest income. Here, the weightage is 45 percentage. See, a state with low per capita income will get a higher share to maintain equity among states. Fifthly, tax and fiscal efforts. It means efforts taken by states to increase the efficiency of tax collection. Here, the weightage is 2.5 percentage. See, this criteria only is used to reward states with higher tax collection efficiency. And finally, demographic performance. It means efforts taken by states in controlling population. Here, the weightage is 12.5 percentage. So, this is all about six criteria. And the total will be calculated adding all these six criteria. And based on the final value only, the tax dilution happens between states. So, this is all with respect to vertical and horizontal tax dilution. I hope now you have got a complete idea about what is tax dilution and the role of finance commission in tax dilution process. See, these types of topics are very much important for your preliminary and main examination. To know more information like this, watch Hindu's analysis of Shankara IS Academy regularly. Thank you for listening.