The correct answer is Grant-in-aid from the Contingency Fund of India.

Finance Commission:

• President constitutes a Finance Commission every 5 years.
• Composition: Chairman and 4 members. 
• The qualification of members is determined by the Parliament. 
• They make recommendations on

1. net proceeds distribution between union and state.
2. grant-in-aid from CFI (Consolidated Fund of India). Hence Option 3 is not correct.
3. Principles and measures needed for augmentation of CFS (Consolidated Fund of State).
4. Resources to panchayats and municipalities.
5. Any other matter referred to the commission by President in the interest of sound finance.

• Procedure and powers are defined by parliament law.

Contingency Fund of India

• Article 267(1) of the Constitution of India makes provisions for the Contingency Fund of India.
• The Secretary, Finance Ministry holds this fund on behalf of the President of India.
• This fund is used to meet unexpected or unforeseen expenditure.
• States to have their own contingency fund.