Budget Glossary: Budget Terms to Help You Decode Nirmala Sitharaman’s Speech. Finance Minister Nirmala Sitharaman is all set to present her maiden Union Budget on Feb 1. This will be the full budget announcement of the Narendra Modi government for the current year after it announced the interim budget in February.
Understanding the budget can be a difficult process as one encounters complex terms that indicate the country’s financial performance. News18.com has simplified the important Budget related terms for readers to help understand the budget and expand financial vocabulary.
LOOKING FOR BUDGET GLOSSARY
The Union Budget is a document which provides an estimation of the revenue and expenses of a country during the financial year. It draws up a financial plan for the country and decides and allocates a specific sum for various government schemes and departments. The Union budget 2021-22 will be announced on February 01 by India’s first full-time woman finance minister, Nirmala Sitharaman
The Annual Financial Statement is a document presented by the government every year in the Parliament showing the estimated receipts and expenditures for the upcoming financial year in relation with the estimates from the previous financial years. Under article 112 of the Constitution, the government has to present an annual financial statement for every fiscal year.
It is a direct tax levied on cash transactions exceeding a specific amount from the bank by a customer. The tax is meant to check the flow of black money as the black money would be forced to switch to electronic mode of communication and to bring more people under the tax ambit.
It includes the estimate of government spending on different sectors throughout the year. It also includes expected revenue from tax receipts together with the estimated fiscal deficit and revenue deficit for the year.
It is a receipt that results in either reduction in assets or increases the liability of the government. It includes market loans, small savings, provident fund and depreciation and reserve funds in various government departments. Capital expenditure is the expenditure which increases government assets or reduce liabilities. It includes loan payment, loan disbursal and expenditure on infrastructure or developmental works.
It is essentially five year plans broken into annual instalments. Through Central Plan, the government tries to achieve long term objectives. In the central plan the government sets out the agenda to be achieved normally in a course of five years. The central plan could be further divided into plan expenditure and non-plan expenditure.
Cess is an additional tax levied for a specific purposes. The cess is kept in the Consolidated Fund of India and the amount raised by the tax is kept by the central government. Some of the cess types in the country include Education Cess, Secondary and higher Education Cess, Krishi Kalyan Cess, Swacch Bharat Cess.
Individual and organisation needs to be prepared to face times of crisis and unforeseen emergencies. It is essential for them to have a financial backup to deal with times of crisis. This is applicable even for countries that have to be prepared for the worse. The fund that is set up specifically to meet the challenges at the time of a crisis is known as the contingency fund. It is the money or securities set aside to cover unexpected conditions or losses in business, usually supplementing a contingency reserve.
It is an additional import duty imposed on imported products (by the importing country) when such products enjoy benefits like export subsidies and tax concessions in the country of their origin. It is an attempt to ensure fair and market oriented pricing of imported products and thereby protecting domestic industries and firms.
Each ministry has to make demands for grants before the Parliament. Cut motion gives power to each MP to oppose any demand made by the government and reduce the amount demanded by the ministry. There are three types of cut motions, namely, Disapproval of policy cut, economy cut and token cut.
It is the tax directly paid to the Government by the taxpayers. It is imposed directly by the Centre and cannot be transferred to any other entity for payment. A taxpayer, for example, pays direct taxes to the government for different purposes, including real property tax, personal property tax, income tax or taxes on assets. The direct taxation is overseen by CBDT or Central Board of Direct Taxes in India.
Disinvestment is the process by which the Union government either sells its stakes in a PSU–fully or partially–or lists it on the stock market. The concept of disinvestment follows the dictum: The government has no business to be in business. Thus, the government continues to disinvest in sectors where private companies are already the dominant players.
Excess grant is the extra budget allocated to meet the additional expenditure demands of the government. When the allocated budget falls short of meeting the expenditure demands of the government, an estimate for additional budget is presented before the Parliament. At the end of each financial year, excess grants are passed by the Parliament.
Excise duty refers to the taxes levied on the manufacture of goods within the country, as opposed to custom duty that is levied on goods coming from outside the country. In July 2017 the Centre introduced GST that subsumed a number of indirect taxes including excise duty. This means excise duty, technically, does not exist in India except on a few items such as liquor and petroleum.
The Finance Bill is introduced in the Lok Sabha, after the presentation of the annual budget, to implement the financial proposals for the following financial year. Finance Bills can be divided into three categories: Finance Bill category I, Finance Bill category II and a Money Bill.
It is a process to provide financial services and timely and adequate credit where needed to vulnerable groups such as weaker sections and low income groups at an affordable cost. It could also be seen as reaching out to the common and the poor through the banking system of the country. Several schemes of the country like Jan Dhan and Direct Benefit Transfer have been implemented to ensure that these financial services reach everyone.
The difference between total revenue and total expenditure of the government is termed as fiscal deficit. It is an indication of the total borrowings needed by the government. While calculating the total revenue, borrowings are not included.
It is the way in which a government plans to adjust its spending and tax rates to improve and shape the country’s economy. Deciding the fiscal policy also includes deciding whether the government wants a fiscal deficit or a balance between revenue and expenditure. Just the like central bank decides a monetary police to influence the money supply, the fiscal policy shapes the economy.
FRBM or Fiscal Responsibility and Budget Management Act was enacted in 2003 to specify annual reduction targets for fiscal indicators. Since it is mandatory for the the central government to take measures to reduce fiscal deficit and to generate revenue surplus, therefore FRBM provides a legal institutional framework for fiscal consolidation.
Fringe Benefits means ‘any consideration for employment provided by way of any privilege, service, facility or amenity provided by the employer to the employees’. Fringe Benefits Tax is paid by employers for benefits paid to an employee in place of salary or wages. The tax is different from income tax and it is calculated on the taxable value of the fringe benefits provided.
Every year after the Union Budget is presented, there are numerous deliberations and debates in the Parliament on various demands for grants by the government and there is voting on each grant before it is passed. Guillotine is the exercise with which the Speaker of the House puts to vote all the remaining demands for grants on the last day of the time allocated for debate on grants. Once the Speaker invokes Guillotine, the House has to vote on all outstanding demands for grants without any discussion.
As the name suggests, indirect tax is not directly levied on the taxpayers. This tax is often levied on goods and services which results in their higher prices. This tax is basically levied on the seller of goods or the provider of service but in most cases, it gets passed on to the end consumer and therefore, it is generally the consumer paying the tax, indirectly. Examples of indirect taxes in India include service tax, central excise and customs duty, value added tax (VAT) and most importantly goods and services Tax (GST).
Inflation can be defined as the rate at which the general prices of goods and services in the country are rising. It is usually expressed in percentage points and when inflation increases, the purchasing power of citizens goes down. When purchasing power decreases, it affects the general cost of living of citizens and ultimately leads to deceleration of country’s economy.
MAT was introduced to reduce tax avoidance by taxing those companies which showed zero or negligible income to avoid tax. Under MAT, these ‘zero-tax companies’ have to pay 18.5% of their book profit as income tax. The Alternate Minimum Tax (ATM), also levied at 18.5%, is a tax similar to MAT but it is imposed on individual taxpayers rather than companies.
It is the revenue of the government from sources other than taxes. Some of the sources of non-tax revenue of the government include interest receipts on loans given to states, public departments or other public sectors. Non-tax revenue also comes from profits of the Public-sector undertakings and economic services like power and railways.
Outcome Budget is like a performance measurement tool which presents a progress card on what the various ministries have done with the money allocated to them in the previous budget. Outcome based budgeting also involves suggesting and listing the estimated outcomes of various government schemes and projects. In a bid to make budgets more result oriented, the idea of outcome budget was first introduced by former Finance Minister P. Chidambaram while presenting the Union budget for 2006-07.
A 'pass-through' status means that the investor has to pay a tax on the income generated, and tax is not paid on the firm. The tax is levied on small businesses, partnerships and corporations.
There are two components of expenditure - plan and non-plan. Of these, plan expenditures are estimated after discussions between each of the ministries concerned and the Planning Commission. Non-plan revenue expenditure is accounted for by interest payments, subsidies, wage and salary payments to government employees, grants to States and Union Territories governments, pensions, police, economic services in various sectors, other general services such as tax collection, social services, and grants to foreign governments.
A fiscal deficit occurs when the government’s spending is more than their earning excluding the money they get from borrowing. Primary deficit is the difference between the fiscal deficit and interest payment on loans from previous year. While fiscal deficit shows the borrowing requirement of the government, including interest payments, primary deficit shows the borrowing requirement excluding interest payment.
Public Account of India accounts for flows for those transactions where the government is merely acting as a banker. Examples of those are provident funds, small savings and so on. These funds do not belong to the government. They have to be paid back at some time to their rightful owners.
The government is allowed to re-appropriate provisions from one sub-head to another within the same grant, thus altering the destination of an original provision for one purpose to another, subject to some limits and restrictions. Appropriation of funds means setting aside money for a specific purpose. A government usually appropriates funds for meeting the cash demands of its business operations or meeting an unexpected need for cash. Appropriations have to be passed by the Parliament and are set for one year at a time.
A revenue budget consists of the government’s revenue receipts and the expenditure they cover through these receipts. Revenue receipts include money collected through various taxes, interest on loans and dividend on investment like PSUs etc. Revenue expenditure is the money spent on the day to day functioning of the government. The money that is earned through revenue receipts is spent on revenue expenditure.
A revenue deficit is when the actual net income is less than the expected or projected income. A revenue deficit is not good for the country as it suggests that the government does not have enough money to cover its basic operations. A revenue deficit does not imply that the government has incurred a loss, it simply means that the government did not earn as much as they were expecting to earn.
Revenue receipts are of two types- tax and non-tax. Tax revenue receipts include money earned through collection of various taxes like income tax, corporate tax etc. Non-tax revenue receipts include money from investments, interest received on loans etc. The money earned through revenue receipts is spent on day-to-day functioning of the government and it is called revenue expenditure. The difference between revenue receipts and expenditure is called revenue deficit, which is usually negative
Securities transaction tax is a direct tax levied on sale and purchase of securities recognized by the stock exchanges in India. The tax was introduced in the 2004 Union Budget and came into effect from October 2004. The tax is meant to curb tax evasion on capital gains tax on profits earned by transacting securities.
It is a type of indirect tax that one is liable to pay to the government once you consume the taxable services offered by different service providers such as restaurants, cab services, hotels, travel agents, cable providers etc. The consumer pays the service tax to the service provider while paying the bill (for example, your restaurant bill has a component of service tax). The government in turn collects the tax from the service providers.
It refers to a grant of money in aid by the government. In every budget, the government makes a mention of subvention. In the Indian context, for instance, the government sometimes asks financial institutions to provide loans to farmers at below market rates. The loss is usually made good through subventions. The government offers subvention on home, crop and education loans.
A surcharge is an additional fee, charge, or tax that is added to the cost of a good or service beyond the marked price. It is generally charged to the richest so that there is equity in the society. The richer have to pay surcharges while the welfare policies are made for the poor with the rich contributing to these policies. Currently, people earning between Rs 50 lakh and Rs 1 crore in India have to pay a surcharge of 10%, while those earning above Rs 1 crore have to pay a surcharge of 15%.
Treasury bills are government bonds or debt securities with maturity of less than a year. It is issued to meet short term differences in government receipts and expenditures. In simpler terms, it is issued when the government needs money for a short period. The bonds of longer maturity are called dated securities.
Every government presents a budget before the Parliament on how they are going to spend money for the next one financial year. The financial year begins from April 1 but if the government’s term is supposed to end soon, an interim budget is presented for the government to function for the next few months before the new government is elected. Other than presenting an interim budget, the government can also seek a vote on account. A vote on account is basically the permission granted by the parliament to the government to spend money for a few extra months before the elections are conducted and a fresh government comes to power, who then present their full union budget for the year.
Ways and means advance is a type of temporary loan facility that Reserve Bank of India gives to the centre or state governments. The current limit set up by the RBI for 2019 is at Rs 75,000 crore. It was introduced in 1997 after putting an end to ad-hoc Treasury Bills to finance the central government deficit.