Explanation:

2nd option is incorrect because it is the function of finance commission of India.

The functions of State Finance commission are given below:
1) To review the economic condition of the various Panchayati raj institutions and municipal bodies that are there in the state
2) To take such steps that help in boosting the financial condition of the various municipal bodies and Panchayati raj institutions in the state
3) To allot funds to the various Panchayati raj institutions and municipal bodies in the state from the Consolidated Fund of the State
4) To act as an arbiter between the central and the state governments with regard to issues that are of financial nature
5) To transfer funds that are granted by the central government to the state government
6) To distribute between the various municipal bodies and Panchayati raj institutions that are there within the state and the state government the total proceeds of taxes, fees, tolls, and duties that are charged by the state government
7) To determine the taxes, tolls, duties, and fees that may be levied by the various Panchayati raj institutions and municipal bodies that are there within the state