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UPSC Prelims 2025, Question 66

The concept being tested: 15th Finance Commission (tax devolution, grants, performance incentives).

Which of the following statements with regard to recommendations of the 15th Finance Commission of India are correct? I. It has recommended grants of ₹4,800 crores from the year 2022-23 to the year 2025-26 for incentivizing States to enhance educational outcomes. II. 45% of the net proceeds of Union taxes are to be shared with States. III. ₹45,000 crores are to be kept as performance-based incentive for all States for carrying out agricultural reforms. IV. It reintroduced tax effort criteria to reward fiscal performance. Select the correct answer using the code given below.

Options

  1. AI, II and III
  2. BI, II and IV
  3. CI, III and IVCorrect answer
  4. DII, III and IV

The answer: I, III and IV

The 15th Finance Commission recommended that States receive 41% of the net proceeds of Union taxes for 2021-26, a cut from the 14th Finance Commission's 42% made to account for Jammu and Kashmir's bifurcation into two Union Territories. This makes the claim of 45% incorrect. The other three statements hold up: the Commission earmarked ₹4,800 crore for 2022-23 to 2025-26 as a performance grant to States for improving educational outcomes; it set aside ₹45,000 crore as a performance-based incentive for States implementing agricultural reforms; and it reintroduced tax effort as a criterion in its horizontal devolution formula, carrying a 2.5% weight, after the 14th Finance Commission had dropped it. Since only the tax-share figure is wrong, the combination of the educational-outcomes grant, the agricultural-reforms incentive and the tax-effort criterion is the correct set.

What UPSC was testing

The trap is a single wrong number planted among three accurate-sounding statements - candidates who recall the general shape of the 15th Finance Commission's recommendations but not the precise 41% devolution figure are pulled toward the rounder, more generous-sounding 45%.

How often this comes up

This concept has appeared 12 times in UPSC Prelims General Studies Paper I between 2015 and 2025 — in 2015, 2016, 2017, 2018, 2020, 2021, 2023, 2024 and 2025.

The option-by-option autopsy for this question — why each of the other three is wrong, and which neighbouring concept each one was built from — is in the app.