The Union Budget 2023-24 will be announced by Finance Minister Nirmala Sitharaman on February 1, 2023. While the budget is an important event in our lives, some of the terminology used can be difficult to understand. To make it easier to understand, we have simplified some of the most essential budgetary terms for better comprehension of the budget.
The Union Budget, as defined by Article 112 of the Indian Constitution, is the statement of estimated receipts and expenditures of the government for a specific financial year, also known as the Annual Financial Statement.
The Union Budget lays out the government's plan for allocating finances. It also provides information on any changes in tax rates or rules, and the areas where the government plans to spend money in the years to come.
As per Article 112 of the Constitution, the government is mandated to present an annual financial statement to Parliament, which is the main budget document. This statement includes an estimation of the government's receipts and expenditure for the financial year, which runs from April 1st to March 31st.
The fiscal deficit is the difference between the government's total revenue and total expenditure. It is an indicator of the amount of borrowing that the government needs to undertake. This deficit is generally financed through borrowing from the central bank or by issuing financial instruments such as bonds and treasury bills in capital markets. It is typically represented as a percentage of the country's GDP.
Gross Domestic Product (GDP) is a measure of the monetary value of all goods and services that are bought by the final user and produced within the geographic boundaries of the country in a specific time period, typically a year. This metric is widely used as an important indicator of a country's economic performance.
In India, the GDP is calculated by the Central Statistical Office (CSO) under the Ministry of Statistics and Programme Implementation, using data from both central and state government-run agencies.
The Consolidated Fund of India is a crucial government account that comprises of all regular government revenues and expenses, except for exceptional items. The fund is utilized for all government expenditure, except for exceptional items which are covered by the Contingency Fund or the Public Account. The government is not allowed to access this fund without approval from the parliament.
Contingency Fund of India, as the name suggests, is a fund established to meet unexpected expenses that may arise during a national emergency. It is at the disposal of the President of India and is used when there is a crisis in the country that requires immediate financial assistance. The Union Government usually has a Contingency Fund of Rs. 500 crore.
The Finance Bill, as outlined in Article 110 of the Constitution, is a bill that includes the government's proposals for new taxes, changes to the existing tax structure, or the continuation of the existing tax structure beyond the period approved by Parliament. It can only be presented in the Lok Sabha.
Direct tax, as the name suggests, is a type of tax that is paid directly by individuals or corporations to the government, including taxes such as income tax and corporate tax. These taxes are imposed directly on the income or assets of individuals or corporates, and the entity paying the tax and the entity on which the tax is imposed are the same.
Indirect tax is a type of tax where the entity paying the tax and the entity on which the tax is imposed are different. These taxes are imposed on goods and services and are paid by the final consumer at the time of sale, such as GST and Customs Duty. Examples of indirect taxes include customs duty, central excise, service tax, and value added tax.
Customs Duty, considered as an indirect tax, is a tax imposed on the import and export of goods by the government. The rates of custom duties are based on the value of goods (ad valorem) or a specific rate. The transaction value of the imported goods is adjusted according to Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.
It is passed on to the final consumer of the goods, although the burden of the tax initially lies on the person, individual or entity doing the import or export.
Revenue deficit is the difference between the government's expenses and income on the revenue account. A revenue deficit indicates that the government's income is not sufficient to cover its day-to-day operations, and it needs to borrow money to balance the difference.
Fiscal policy is the strategy adopted by the government to manage the economy by adjusting its revenue collection through taxation and expenditure levels through public borrowing and spending, in order to achieve sustainable growth and control inflation. It is a set of decisions taken by the government to monitor and achieve the nation's economic goals along with controlling inflation.
Inflation is the increase in the overall prices of goods and services in an economy. In other words, it refers to the decrease in purchasing power of money in an economy. For example, if you were able to buy 10 chocolates for Rs 100 at one point, due to inflation, over time, you may only be able to buy 8 chocolates at the same price of Rs 100.
Monetary policy is the strategy implemented by the central bank, Reserve bank of India (RBI), to regulate the supply of money in the economy in order to achieve optimal growth. It involves the actions taken by the monetary authority, primarily the RBI, to monitor and manage the demand and supply of money in the economy.
Capital Budget is a financial plan that includes the estimated amount of capital receipts and payments. Capital Budget is composed of two main elements: Capital Receipts and Capital Expenditure.
Capital Receipts include various forms of income such as disinvestment, loans taken from the public, loans received from foreign governments/bodies, borrowings from RBI, recoveries of loans from State/UT Governments, and other parties.
Capital Expenditure, on the other hand, includes the costs incurred by the government for various developmental activities such as developing healthcare facilities, machinery, roads, and acquiring land, buildings, etc. Additionally, it also includes loans granted by the Central Government to State and Union Territory Governments, government companies, corporations, and other parties.
The Revenue Budget is an important aspect of the Union Budget, which is presented by the government every year. It plays an important role in determining the financial health of the country and helps the government in making informed decisions on how to allocate resources effectively. The Revenue Budget is composed of two main elements: Revenue Receipts and Revenue Expenditure.
Revenue Receipts are the primary source of income for the government received through various sources such as tax-related revenues, dividends and interest on investments made by the government, and receipts for services provided by the government.
Revenue Expenditure, on the other hand, includes the costs incurred by the government for the normal functioning of government departments, interest paid on debt, subsidies, etc. Any expenditure that does not lead to the creation of an asset for the government is considered as revenue expenditure.
Re-appropriation refers to the process of redirecting funds from one unit to another within a specific Grant or Appropriation. This is typically done when the government needs to shift funds between different departments or programs. The process of re-appropriation requires the approval of a competent authority before the close of the financial year.
Disinvestment refers to the process of selling shares by the government in a public sector company. The government is the shareholder in public sector companies, and they can sell these shares to generate cash to manage expenditure. Disinvestment is also referred to as divestment or divestiture.
Subvention is a financial support from government in form of grant, subsidies or tax breaks to specific sectors or groups. Indirect support can also be provided through asking financial institutions to grant loans at lower interest rates. An example of this is when the government requests banks to offer loans to farmers at reduced interest rates.
The Halwa Ceremony is a traditional practice that takes place before the presentation of the Union Budget in the Parliament. The ceremony is held roughly a week before the budget is presented and is attended by the officers and support staff who are involved in the printing and distribution of the budget documents.
This Article was authored by Tushant a passionate blogger by .
Co-founded Tax Ninja with the aim to serve knowledge digitally.
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