The Panchayati Raj Act does not apply to the states of Nagaland, Meghalaya, and Mizoram and certain other areas that include:

• The scheduled areas for which PESA, 1996 is applicable.
• The tribal areas in four states (Assam, Meghalaya, Mizoram and Tripura), for which there exists respective autonomous district councils.
• The hill areas of Manipur for which a district council exists.
• The Darjeeling Gorkha Hill Council was established for the Darjeeling district in West Bengal. 

The parliament holds the authority to extend the provisions of this part to scheduled areas, with exceptions and modifications specified by it. In line with this provision, Parliament has enacted the “Provisions of the Panchayats (Extension to the Scheduled Areas) Act,” 1996 (PESA).

Bar on Court Interference in Panchayat Electoral Matters

The act restricts court intervention in the electoral affairs of panchayats. It also states that the legitimacy of any law concerning the delimitation of constituencies cannot be challenged in any court. Additionally, it specifies that no election for any panchayat can be questioned unless through an election petition submitted to the designated authority and in the manner established by the state legislature.

State Finance Commission

The Governor of the State will have the power to constitute a Finance Commission to review the financial position of the Panchayats. The State Finance Commission may submit recommendations to the Governor on the following matters with reference to the financial position of the Panchayats-

• Distribution of revenue: Principles relating to the distribution of net proceeds of taxes, duties, tolls and fees levied by the State, between the State and the Panchayats and the allocation of funds among the Panchayats at all levels.
• Assignment of taxes: Determination of the taxes, duties, tolls and fees which may be assigned to the Panchayats.
• Grants: Principles governing grants-in-aid for Panchayats out of the Consolidated Fund of the State.
• Financial Condition: Necessary measures to improve the financial condition of Panchayats.
• Other matters: In respect of any other matter referred to the Finance Commission by the Governor in the interest of sound finance of the Panchayats.

The state legislature is empowered to devise the manner of composition, selection of members and the required qualifications in relation to the state finance commission. The Governor of the state is required to table the recommendations of the commission and the action taken report before the state legislature. The Central Finance Commission shall suggest measures required to augment the consolidated fund of a state to supplement the resources of the panchayats in the states (based on the recommendations made by the finance commission of the state).

Mandatory vs Voluntary Provisions in Panchayati Raj System

Mandatory provisions are those which must be incorporated by state governments in their respective legislations on the Panchayati Raj. This is done in order to have an uniformity in the structure of Panchayats across the country. While incorporation of the voluntary provisions, as the name indicates, are left to the discretion of state governments i.e., they may or may not include these voluntary provisions in their respective legislations on the Panchayati Raj. The flexibility relating to voluntary provisions is provided to states due to the diverse nature of Indian society and differences among states based on their respective strength in terms of resources.