The correct answer is Option 2 - The panchayat derived its funds from grants and aid given to them by the local rulers
The village community in 16th-17th centuries:
The village panchayat was an assembly of elders, usually important people of the village with hereditary rights over their property.
In mixed-caste villages, the panchayat was usually a heterogeneous body.
An oligarchy, the panchayat represented various castes and communities in the village, though the village menial-cum-agricultural worker was unlikely to be represented there.
The decisions made by these panchayats were binding on the members.The panchayat was headed by a headman known as muqaddam or Mandal.
Some sources suggest that the headman was chosen through the consensus of the village elders and that this choice had to be ratified by the zamindar. (OPTION 4)
Headmen held office as long as they enjoyed the confidence of the village elders, failing which they could be dismissed by them.
The chief function of the headman was to supervise the preparation of village accounts, assisted by the accountant or patwari of the panchayat. (OPTION 1)
The panchayat derived its funds from contributions made by individuals to a common financial pool. (CORRECT VERSION OF OPTION 2)
These funds were used for defraying the costs of entertaining revenue officials who visited the village from time to time.
Expenses for community welfare activities such as tiding over natural calamities (like floods), were also met from these funds.
Often these funds were also deployed in the construction of a bund or digging a canal which peasants usually could not afford to do on their own.
One important function of the panchayat was to ensure that caste boundaries among the various communities inhabiting the village were upheld.
In eastern India all marriages were held in the presence of the mandal.
In other words one of the duties of the village headman was to oversee the conduct of the members of the village community “chiefly to prevent any offence against their caste”. (OPTION 3)
Panchayats also had the authority to levy fines and inflict more serious forms of punishment like expulsion from the community.
The latter was a drastic step and was in most cases meted out for a limited period.
It meant that a person forced to leave the village became an outcaste and lost his right to practise his profession.
Such a measure wasintended as a deterrent to violation of caste norms. | 
