Budget Jargon Buster – What You Need to Know Before You Hear It
Finance minister Nirmala Sitharaman will present the Union Budget 2022 in Parliament on 1 February. As per Article 112 of the Indian Constitution, the ruling Government has to present an annual statement of the estimated receipts and expenditure of the Government for every financial year. That statement is known as the Union Budget.
The Union Budget acts as the Government's roadmap for tax collection and fund allocation during a given financial year. It is also significant for the general public since it can bring tax changes. However, it is crucial to understand a few terminologies to decode the budget properly.
Below are a few budget-related terms you should know before hearing them on 1 February.
1. Capital Budget
The capital budget comprises the Government's capital receipts and payments during the applicable financial year. Some sources for the Government's capital receipts include loans raised from the public, states and union territories, foreign countries, Reserve Bank of India (RBI), sale of treasury bills, state provident funds, special deposits, etc.
On the other hand, capital payments refer to the expenses incurred by the Government to build long-term assets and facilities for public welfare. Examples of capital payments include roads, schools, healthcare facilities, development and maintenance of equipment, machinery, infrastructure, etc.
2. Revenue Budget
The revenue budget comprises the Government's financial statement of revenue receipts and revenue expenditure applicable for the financial year. Revenue receipts estimate the tax and non-tax revenue the Government expects to receive during a year. They can be from various taxes and non-taxable sources, such as interest, profit, fines, etc.
Revenue expenditure refers to the expenses incurred by the Government for its day-to-day functioning and providing essential public services. For example, operational expenses for Government offices, salaries of Government employees, giving subsidies to the citizens, etc.
3. Fiscal Deficit
Fiscal deficit refers to the gap between the Government's revenues and total spending. If the Government's total expenditure during a year exceeds the total revenues during the same period, the state of fiscal deficit occurs.
The Government tries to bridge the fiscal deficit gap by increasing their income or reducing their expenditure. The increasing fiscal deficit may increase the country's inflation rate or adversely impact sovereign rating.
4. Finance Bill
As mentioned, the Government may propose modifications to the existing tax structure of the country in the Union Budget. Any proposal for the levy of new taxes or alternations in the current taxation system can be placed before the Parliament through a Finance Bill. This Bill may contain amendment proposals for direct and indirect taxes in India.
5. Direct and Indirect taxes
There are two types of taxes – Direct and Indirect Taxes. Direct taxes are levied directly on individuals and corporate entities. These taxes are non-transferable. Income tax is the most common form of direct tax in India. Other direct taxes in India include capital gains tax, corporate tax, gift tax, and property tax.
On the other hand, indirect taxes are imposed on the sale and purchase of products and services. These taxes form the most significant source of revenue for the Government. Some examples of indirect taxes in India include Goods and Services Tax (GST), , excise duty, customs duty, etc..
6. Consolidated Fund
It is the most important Government Fund. All revenues that the Government is expected to receive during the applicable financial year flow into the Consolidated Fund of India (CFI). All Government expenditures are made from this fund after the authorisation of the Parliament.
7. Contingency Fund
As the name suggests, this fund is created and maintained by the Government to meet any unforeseen expenses. It is an Rs. 500 crore fund held by the Department of Economic Affairs on behalf of the president of India. Form Budget 2021-22 proposed to increase the amount to Rs. 30,000 crores.
Knowing these budget jargons may help you understand the Union Budget in a better manner. Keep visiting this space to read more pre-budget articles before the Union Budget 2022 unfolds in Parliament on 1 February.
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