The Finance Commission performs following functions-

According to Article 280, The finance commission is required to make recommendation to the President of India on the following matters.

(1) The distribution of net proceeds of taxes to be shared between the centre and states and the allocation between the states, the respective shares of each proceeds.

(2) The principles which should govern the grants in aids to the state by the centre from the consolidated fund of India.

(3) The measures needed to augment the consolidated fund of a state to supplement the resources of the Panchayats and the Municipalities in the state on the basis of recommendations made by Finance Commission

(4) Any other matter referred to it by the President in the interest of sound finance.