Municipality” means an institution of self-government constituted under Article 243Q of the Indian Constitution in urban areas. As mandated in the Indian Constitution, there shall be constituted in every State,—
(a) a Nagar Panchayat (by whatever name called) for a transitional area, that is to say, an area in transition from a rural area to an urban area;
(b) a Municipal Council for a smaller urban area; and
(c) a Municipal Corporation for a larger urban area,
A Municipality may not be constituted in such urban area or part thereof as the Governor may, having regard to the size of the area and the municipal services being provided or proposed to be provided by an industrial establishment in that area and such other factors as he may deem fit, by public notification, specify to be an industrial township. Whether an area is “a transitional area”, “a smaller urban area” or “a larger urban area” is specified so by public notification by the Governor after taking into consideration the following factors:
(a) the population of the area,
(b) the density of the population therein,
(c) the revenue generated for local administration,
(d) the percentage of employment in non-agricultural activities,
(e) the economic importance or such other factors as Governor may deem fit.
Constitutional provisions relating to Municipalities may be seen here.