Union Finance Minister Arun Jaitley will present Indian government's revenue and expenditure for the next fiscal year on February 1.
Knowing the technical terms in the Indian context is the key to understanding the Union Budget.
Here's a brief explanation of the technical terms generally found in the Union Budget.
Annual Financial Statement (AFS)
Statement of estimated receipts and expenditure of the Centre presented in Parliament for the financial year (April to March).
Appropriation Bill
It is a bill presented in Parliament that authorises the government to withdraw money from public fund (Consolidated Fund of India) for its activities and programmes.
Balance of Payment (BoP)
It is the settlement of money in the foreign exchange market. BoP is positive for the nations if more money comes in than goes out. If outflow of cash is more, then BoP is negative.
Capital Budget
A long-term financial plan for raising capital (called as Capital Receipts) and its investment in land, buildings and machines for developing a project (called as Capital Payment or Expenditure).
Capital Gains Tax
Tax on profit earned from selling a property.
Capital Expenditure/Capital Payment
It is the expense for purchasing assets like land, building and machinery for developing government companies and institutions. It can also be in the form of loans to states with the same purpose.
Capital Receipts
Loans raised by the government from public, Reserve Bank of India, foreign governments or any other agency by issuing bonds. Cash raised by disinvestment of public sector companies is also termed capital receipt.
Consolidated Fund
It is the fund from which the government meets all its expenses. It cannot be withdrawn without prior approval from Parliament. It consists of revenues of the government, receipts from loan recoveries and loans raised by the government from various sources.
Corporate Tax
It is a tax levied on a company’s profit. Both Indian and foreign companies are bound to pay corporate tax.
Contingency Fund
All unforeseen expenses of the government are met from contingency fund. Spending from contingency fund has to be returned from the Consolidated Fund of India.
Current Accounts Deficit
Also called Trade Deficit. It is the amount by which value of imported items like goods, services and investment exceeds the value of exports.
Customs Duty
Tax imposed on imports (sometimes on exports too) for generating revenue to the government or simply to protect the domestic sector from foreign dumping.
Demand for Grants
An estimate of expenditure from ministries or departments presented before Parliament for withdrawal of money from the Consolidated Fund of India.
Direct Tax
Taxes like income tax, corporate tax that are directly borne by the taxpayer. These taxes cannot be shifted to somebody else.
Disinvestment Receipts
Capital Receipts for the government as it disposes its equity holdings in public sector companies.
Dividend Distribution Tax
Tax imposed on companies as they pay out dividends to shareholders.
Excise Duty
Tax on goods made in the country. It is an indirect tax borne by the consumer.
Expenditure Budget
Cost estimate for a project planned by Union ministries or departments shown under revenue and capital heads.
External Commercial Borrowing (ECB)
Foreign currency borrowings for investing in public sector using external sources like the World Bank. It cannot be used for speculative trade activities like stock market or real estate.
Finance Bill
Proposals presented in Parliament for introduction of new taxes, changes in the existing tax structure or extension of the same for a period longer than earlier approved by the house. The Finance Bill passed by Parliament becomes the Finance Act.
Fiscal Consolidation
It refers to the policies or steps aimed at managing deficit or reducing debt. It is mostly about increasing revenues and lowering spending.
Fiscal Deficit
Fiscal deficit situation happens when the government's total expenditure exceeds its revenues, excluding all borrowings. Fiscal deficit is the difference between the government's expenditure and revenue. In other words, it is the borrowed fund for meeting its budget requirements.
Fiscal Policy
Fiscal policy involves changes in tax structure and control over spending. While the RBI controls money supply by using monetary policy, fiscal policy is the tool used by the government to influence the economy.
Goods and Services Tax (GST)
The new tax system. Merging all the indirect taxes, it is to be a simpler and uniform tax structure for the country. The procedure to implement GST is under way.
Income Tax
Tax levied directly on personal incomes like salary, investments and interest on deposits.
Indirect Taxes
Taxes levied on goods and services at various stages, unrelated to income or profits. Indirect tax is shifted to the consumer.
Inflation
Inflation refers to a sustained increase in the general price level of goods and services in an economy. The impact is felt as decreasing purchasing power of the currency. It is measured by some broad index over months or years.
Monetised Deficit
It happens when RBI hands over more currency to help fill the government’s deficit. Technically, the central bank is supporting the government in its borrowing programme by selling treasury bonds in the market.
Monetary Policy
Reserve Bank of India controls flow of money in the market by changing its key interest rates. Using its monetary policies, RBI aims to optimise inflation, minimise unemployment, maintain salary growth and helps achieve GDP growth rate.
Non-Plan Expenditure
Non-plan expenditures are fixed expenses involving wages, pension for Central staff, interest payments, subsidies, loans and grants to states and Union territories and also aid to foreign governments.
Plan Expenditure
Expenditure on Central plans and assistance to plans for states and Union territories. Planned expenditure are amounts spent according to the availability of resources.
Plan Outlay
Plan Outlay details how the financial resources are shared among the different sectors in the economy and allotments to ministries of the government.
Primary Deficit
Primary Deficit is the difference in value between fiscal deficit of the current year and interest payments for the borrowings done earlier.
Primary Deficit = Fiscal Deficit – Interest Payments.
While Fiscal Deficit shows total borrowing requirements, Primary Deficit shows the total borrowing requirements, excluding interest.
Progressive Tax
A tax system in which the tax rate goes up as the taxable amount increases. Taxpayers in the high earning group pay more compared with those who earn less.
Proportional Tax
In the proportional tax system, the tax rate is same for all income groups of taxpayers. With a fixed rate, the tax collected is proportional to the amount for taxation.
Public Account
The government merely acts as a banker in managing pubic accounts. For example, provident funds, small savings and some deposits. Unlike the Consolidated Fund of India, public funds do not belong to the government, but are kept in the account till returned to the rightful owners. Payments from public account need not be approved by Parliament.
Regressive Tax
A taxing scheme in which the tax rate decrease as the taxation amount increases. Low-income group pays higher tax rate than high-income group.
Revenue Budget
Revenue Budget consists of both revenue receipts of the government and the expenditure using this revenue.
Revenue receipts includes tax, duties and earnings by the government from interest and dividend on investments and fees and receipts for services of the government.
Revenue expenditure is expenses for the government departments and allied services, interest charges on debt incurred by government, subsidies among others.
Revenue Deficit
A revenue deficit arises when the actual revenue collected falls short of the budgeted revenue and expenditure figures. But if the actual receipts exceed projected receipts, it results in revenue surplus. So an excess of revenue expenditure of the government over revenue receipts leads to a revenue deficit.
Revenue Receipt
Revenue receipts include tax, duties and earnings by the government from interest and dividend on investments and fees and receipts for services rendered by the government.
Securities Transaction Tax
A small turnover tax levied on every transaction done in the stock exchanges. It covers purchase or sale of instruments in the form of shares, derivatives or equity-oriented mutual funds.
Value-Added Tax (VAT)
It is tax levied at each stage of production. It is collected incrementally, right from the raw material to the finished product, only for the value added, and the end consumer bears the whole tax. VAT avoids double taxation (tax on tax).
