📑 Topics on this page (Jump to Topic):
📌 1. CAG: Constitutional Provisions
| Article | Provision |
|---|---|
| 148 | There shall be a CAG of India, appointed by the President by warrant under his hand and seal; removed only like a Supreme Court judge; not eligible for further office under the Government of India or any State after leaving office; salary and conditions fixed by Parliament and not varied to his disadvantage; administrative expenses charged on the Consolidated Fund of India. |
| 149 | Duties and powers relating to the accounts of the Union, States and other authorities — as set by Parliament: the CAG (Duties, Powers and Conditions of Service) Act, 1971. |
| 150 | Accounts of the Union and States are kept in the form the President prescribes on the advice of the CAG. |
| 151 | Reports on Union accounts go to the President, who lays them before each House of Parliament; State reports go to the Governor, who lays them before the State Legislature. |
| 279 | "Net proceeds" of taxes are ascertained and certified by the CAG — the certificate is final. |
- Term: 6 years or age 65, whichever is earlier (1971 Act); resigns to the President. Oath: as in the Third Schedule, before the President.
- Removal: on an address passed by both Houses by special majority, on grounds of proved misbehaviour or incapacity.
- Salary equal to a Supreme Court judge. The CAG heads the Indian Audit and Accounts Department (IA&AD).
- First CAG: V. Narahari Rao (1948). Current CAG (as of October 2026): K. Sanjay Murthy — since 21 November 2024.
📌 2. CAG: Role and Responsibilities
- Audits all expenditure from the Consolidated Fund, Contingency Fund and Public Account of the Union and States.
- Audits government companies and bodies substantially financed by government; others on request of the President or Governor.
- Types of audit: regularity/legal (mandatory — spending per sanction and rules), propriety (discretionary — "wisdom and economy"), performance (economy, efficiency, effectiveness).
- Reports are examined by the Public Accounts Committee (PAC); the CAG is called the PAC's "friend, philosopher and guide".
- Since 1976 accounting has been separated from audit at the Centre (departmentalisation of accounts) — the CAG no longer compiles Union accounts; it still compiles State accounts.
- Dr Ambedkar: the CAG is "probably the most important officer in the Constitution of India". The CAG audits only after spending (post-facto); India's CAG does not control the release of funds (the "comptroller" role).
⚠️ Exam Traps:
- The CAG's report goes to the President, not directly to Parliament (Art. 151).
- The CAG is not an officer of Parliament; it is an independent constitutional authority that helps Parliament hold the executive to account.
📌 3. Finance Commission: Provisions and Functions
| Point | Details |
|---|---|
| Article 280 | Constituted by the President every 5 years or earlier; a chairman + four members. |
| Qualifications | Set by Parliament — Finance Commission (Miscellaneous Provisions) Act, 1951: chairman experienced in public affairs; members qualified as HC judges or experts in finance/accounts, administration or economics. |
| Function 280(3)(a) | Distribution of net tax proceeds between the Union and States (vertical) and allocation among States (horizontal). |
| Function 280(3)(b) | Principles of grants-in-aid to States from the Consolidated Fund (Article 275). |
| Functions 280(3)(bb), (c) | Measures to augment a State's Consolidated Fund to supplement panchayats (73rd Amendment) and municipalities (74th Amendment), based on State Finance Commission recommendations. |
| Function 280(3)(d) | Any other matter referred by the President in the interests of sound finance. |
| Article 281 | The President lays the recommendations, with an explanatory memorandum on action taken, before each House of Parliament. |
- Recommendations are advisory, not binding on the government. The Commission is often called a quasi-judicial body.
- First Finance Commission (1951): K. C. Neogy. State Finance Commissions: Article 243-I (panchayats) and 243-Y (municipalities) — set up by the Governor every 5 years.
📌 4. 15th and 16th Finance Commissions
| Point | 15th Finance Commission | 16th Finance Commission |
|---|---|---|
| Chairman | N. K. Singh | Dr Arvind Panagariya |
| Award period | 2021-22 to 2025-26 | 2026-27 to 2030-31 |
| States' share (vertical) | 41% | 41% |
| Income distance | 45% | 42.5% |
| Population (2011) | 15% | 17.5% |
| Demographic performance | 12.5% | 10% |
| Area | 15% | 10% |
| Forest | 10% | 10% |
| Tax and fiscal effort | 2.5% | — |
| Contribution to GDP (new) | — | 10% |
- The 16th FC submitted its report to the President on 17 November 2025; it was laid in Parliament on 1 February 2026; the government accepted the 41% share.
- 16th FC grants: ₹9.47 lakh crore over five years — local bodies (rural and urban) and disaster management; revenue-deficit, sector-specific and state-specific grants discontinued.
- Fiscal roadmap: Centre's fiscal deficit to 3.5% of GDP by 2030-31; States' annual limit 3% of GSDP; off-budget borrowing to be stopped.
- Under the 16th FC the largest share is Uttar Pradesh (17.62%), then Bihar (9.95%).
Worked example: the divisible pool
Suppose the Centre's gross tax revenue is ₹40 lakh crore, cesses and surcharges ₹5 lakh crore and cost of collection ₹1 lakh crore. Divisible pool = 40 − 5 − 1 = ₹34 lakh crore. States' share (41%) = 0.41 × 34 = ₹13.94 lakh crore. Uttar Pradesh (17.62%) gets 0.1762 × 13.94 ≈ ₹2.46 lakh crore.
⚠️ Exam Traps:
- Cesses and surcharges are outside the divisible pool — so they are not shared with States.
- The 1-point fall to 41% (from the 14th FC's 42%) reflected Jammu and Kashmir becoming a Union Territory.
💡 Memory Tip: "148 to 151 — four for the CAG; 280-281 — two for the Finance Commission; 279 — net proceeds certified by the CAG."
📌 5. Practice MCQs
📝 Practice MCQs (prepared by SF Prep — not PYQs)
Q1. Under which Article is the CAG appointed? Practice
Correct answer: (D)
Art. 148 — office and appointment of the CAG.
Art. 148 — office and appointment of the CAG.
Q2. To whom is the CAG's report on Union accounts submitted? Practice
Correct answer: (A)
Art. 151 — the President lays it before Parliament.
Art. 151 — the President lays it before Parliament.
Q3. The CAG's term is: Practice
Correct answer: (B)
CAG Act 1971.
CAG Act 1971.
Q4. The CAG is removed in the same manner as a: Practice
Correct answer: (C)
Art. 148(1).
Art. 148(1).
Q5. The CAG's duties and powers are laid down in the: Practice
Correct answer: (C)
Under Art. 149.
Under Art. 149.
Q6. Who prescribes the form of Union and State accounts? Practice
Correct answer: (D)
Art. 150.
Art. 150.
Q7. The certificate of "net proceeds" of taxes is final when issued by the: Practice
Correct answer: (A)
Art. 279.
Art. 279.
Q8. The CAG is called the "friend, philosopher and guide" of the: Practice
Correct answer: (B)
The PAC examines CAG reports.
The PAC examines CAG reports.
Q9. Audit that checks the "wisdom, faithfulness and economy" of spending is: Practice
Correct answer: (A)
Propriety audit is discretionary.
Propriety audit is discretionary.
Q10. When was accounting separated from audit at the Centre? Practice
Correct answer: (C)
Departmentalisation of accounts.
Departmentalisation of accounts.
Q11. Who is the CAG of India as of October 2026? Practice
Correct answer: (D)
Since 21 November 2024.
Since 21 November 2024.
Q12. Under Article 280, who constitutes the Finance Commission? Practice
Correct answer: (B)
The President constitutes it every 5 years or earlier.
The President constitutes it every 5 years or earlier.
Q13. How many members, including the chairman, does the Finance Commission have? Practice
Correct answer: (B)
Chairman + four members.
Chairman + four members.
Q14. The qualifications of Finance Commission members are in the: Practice
Correct answer: (C)
Enacted by Parliament in 1951.
Enacted by Parliament in 1951.
Q15. In which year was the First Finance Commission set up? Practice
Correct answer: (D)
1951, chaired by K. C. Neogy.
1951, chaired by K. C. Neogy.
Q16. Dr Arvind Panagariya chairs which Finance Commission? Practice
Correct answer: (A)
16th FC, award period 2026-31.
16th FC, award period 2026-31.
Q17. The 16th FC's share for States (41%) is the same as that recommended by the: Practice
Correct answer: (D)
The 14th FC gave 42%; the 15th and 16th gave 41%.
The 14th FC gave 42%; the 15th and 16th gave 41%.
Q18. Which new criterion did the 16th Finance Commission give a 10% weight? Practice
Correct answer: (A)
It replaced tax and fiscal effort (2.5%).
It replaced tax and fiscal effort (2.5%).
Q19. If the divisible pool is ₹34 lakh crore and the States' share is 41%, total devolution is: Practice
Correct answer: (B)
0.41 × 34 = 13.94.
0.41 × 34 = 13.94.
Q20. Finance Commission recommendations, with the action-taken memorandum, are laid in Parliament under Article: Practice
Correct answer: (C)
Art. 281.
Art. 281.