New Delhi, Feb 1 (IANS): The 15th Finance Commission, in its interim report for 2020-21, recommended reducing states share in the divisible pool of Central taxes by one percentage point to 41 per cent, as J&K has moved out from the states list.

The commission's report, tabled in the Parliament by Finance Minister Nirmala Sitharaman, also tweaked the criteria and weights under which funds are allocated to the states. It has assigned 15 per cent weight to the population of a state, down from 17.5 per cent allocated by the previous commission.

The FC has raised the weight under demographic performance to 12.5 per cent from 10 per cent allocated by the 14th Finance Commission. The report also introduced the criteria of "tax effect" for states, assigning it 2.5 per cent weightage and has significantly reduced weight for income distance to 45 per cent from 50 per cent previously.

"We acknowledge the criticality of the additional ToR asking us to examine whether a separate mechanism for funding defence and internal security is to be set up. There is merit in ensuring a predictable and stable flow of funds for defence and internal security and this will receive appropriate consideration in our final report," the report said.

"We have in substantial measure accepted the recommendations of the commission," Sitharaman said during her Budget speech.