Its term was scheduled to end on November 30.
Post the extension, the Commission will submit two reports, the first for financial year 2020-21 as well as the final report for financial years 2021-22 to 2025-26.
"The Union Cabinet approved the Fifteenth Finance Commission (FC) to submit its first report for the first fiscal year viz. 2020-21 and to extend the tenure of XV-FC to provide for the presentation of the final report covering FYs 2021-22 to 2025-26 by October, 31, 2020," an official statement said.
It also said the extension of the term will enable the Commission to examine various comparable estimates for financial projections in view of reforms and the new realities, to finalise its recommendations for the period 2020-2026.
The Commission, on account of the restrictions imposed by the Model Code of Conduct, completed its visit to the states only recently. This has had a bearing on the detailed assessments of states' requirements.
"The 'Terms of Reference' for the Commission are wide-ranging in nature. Comprehensively examining their implications and aligning them to the requirements of the states and the Central government will require additional time," the statement said.
The proposed increase in coverage of the period for which the Commission's recommendations are applicable, would help medium-term resource planning for the state governments and the central government, according to the release.
Making a five year coverage available for the commission beyond April 1, 2021, would help both state and central governments design schemes with medium to long term financial perspectives and provide adequate time for mid-course evaluation and correction, the statement added.
( With inputs from IANS )