Budget- terminologies and concepts

Article 112 of the Constitution of India requires Government to present a statement

at the beginning of every financial year of the estimated receipts and expenditure of
the Government of India for that year before both houses of the Parliament. This is
referred to as Annual Financial Statement or Budget.
While Expenditure Budget presents the information on how much and on what
the Government expects to spend in the next fiscal year, the Receipts Budget
presents the information on how much the Government intends to collect as its
financial resources for meeting its expenditure requirements and from which
sources, in the next fiscal year.
Classification of expenditure of Government
A. Capital Expenditure and Revenue Expenditure

Capital Expenditure- those expenditures by the government that lead to an

increase in the assets or a reduction in the liabilities of the government.
Examples of Capital Expenditure causing increase in assets: Expenditure on
purchase of land, buildings, machinery, construction of a new Flyover, cash in
hand, Union Govt. giving a Loan to a State Govt., investment in shares etc.
Examples of Capital Expenditure causing reduction of liability: Repayment
of loans

Revenue Expenditure- those expenditures by the government that do not

affect its asset liability position.
Examples of Revenue Expenditure: Expenditure on salaries of employees,
subsidies, pension, procurement of text books, payment of interest, etc.

B. Plan and Non Plan Expenditure

Plan Expenditure
Government expenditure meant for financing the programmes /schemes
formulated under the ongoing/ previous five year Plan is referred to as plan
expenditure.

Non-Plan Expenditure
Expenditure of the government, which does not come under the ambit of Plan
Expenditure is called Non Plan Expenditure. It includes interest payments,
pension, defence expenditure, spending on legislature, subsidies etc.
Classification of Government Receipts

A. Capital Receipts- those receipts that lead to a reduction in the assets or an

increase in the liabilities of the government.

Capital Receipts that lead to reduction in assets: Recoveries of Loans given

by the government and Earnings from Disinvestment.

Capital Receipts leading to increase in liabilities: Debt.

B. Revenue Receipts-those receipts that dont affect the asset-liability position

of the government.
Revenue Receipts comprise proceeds of Taxes (like, Income Tax, Corporation Tax,
Customs, Excise, Service Tax, etc.) and Non-tax revenue of the government (like,
Interest receipts, Fees/ User Charges, and Dividend & Profits from PSUs)
Direct Tax
A type of tax where tax burden cannot be shifted is called direct tax. Income tax,
FBT, STT and BCTT are direct taxes.
Corporation Tax: This is a tax levied on the income of Companies under the
Income Tax Act, 1961.
Taxes on Income: This is a tax on the income of individuals, firms etc. other than
Companies, under the Income Tax Act, 1961. This head also includes other Taxes,
mainly the Securities Transaction Tax, which is levied on transaction in listed
securities undertaken on stock exchanges and in units of mutual funds.
Wealth Tax: This is a tax levied on the specified assets of certain persons including
individuals and companies, under the Wealth Tax Act, 1957.
Indirect Tax
In case of indirect taxes, the incidence of tax is usually not on the person who pays
the tax. These are largely taxes on expenditure and include Customs, excise and
service tax. Indirect taxes are considered regressive, the burden of which has to be
borne by the rich and the poor alike.
Indirect Taxes include Custom Duties, Excise Duties, Sales Tax, Value Added Tax
(VAT) etc.
Customs Duties: It is a type of tax levied on goods imported into the country as
well as on goods exported from the country.
Excise Duties: It is a type of tax levied on those goods, which are manufactured in
the country and are meant for domestic consumption.
Sales Tax: It is levied on the sale of a commodity, which is produced/imported and
being sold for the first time.
Service Tax: It is a tax levied on services provided by a person and the
responsibility of payment of the tax is cast on the service provider.
Value Added Tax (VAT): VAT is a multi-stage tax, intended to tax every stage of
sale of a good where some value has been added to the raw materials; but

taxpayers do receive credit for tax already paid on the raw materials in earlier
stages.
Goods and Service Tax (GST) : Goods and Services Tax (GST) refers to the single
unified tax created by amalgamating a large number of Central and State taxes
presently applicable in India. This tax will be substitute for all indirect taxes levied
by state and central government.
Cess: Cess is an additional levy on the basic tax liability the government resort to
for meeting specific expenditure.
Fiscal & revenue deficit
The difference between total revenue and total expenditure of the Government is
referred to as fiscal deficit.
Revenue deficit arises when the government's actual net receipts is lower than the
projected receipts. This is an important control indicator.
On the contrary, if the actual receipts are higher than expected , it is termed as
revenue surplus.
Types of Government budget

Surplus budget

The situation wherein the expected receipts of the

anticipated expenditure is known as surplus budget.

Government exceeds its

Balanced budget

The situation wherein estimated expenditure is equal to anticipated revenue is

known as balanced budget.

Deficit budget

A budget deficit is when a country's government spends more than it takes in from
taxes or other forms of revenue.