Know all you need to know about the Union Budget of India. You will get all the information about the Drafting process, a bit of it’s history and a lot of Budget terminology.
Before beginning this topic, I would like to give 3 simple definitions of ‘budget’, which will give you a fair idea about this term.
- A budget is telling your money where to go instead of wondering where it went.
- A budget is a written list of how you plan to spend your income.
- A budget is separating larger goals or large debts into smaller achievable increments, typically by monthly payment.
Okay before moving on let’s know the purpose of the Union budget.
The budget is announced to disclose the government’s future expenditures intended to strengthen the nation’s economy and consolidate economic stability through tax proposals.
The hardest part of creating a budget is sitting down and actually creating one. It’s like staring at a blank piece of paper when you need to write something and that first step seems like a massive hurdle.
In the Union government, there is a budget division in the department of economic affairs under the Ministry of Finance. This division starts the process of formulation of the next financial year’s Union budget in the months of August–September every year.
The offices are supposed to prepare three different kinds of figures relating to their expenditures and receipts during this process of budget preparation. These are: budget estimates, revised estimates and actuals. These are just a step-by-step process to give a final actual estimate.
In the past few years, the finance ministry has been vociferously arguing for reduction of fiscal deficit and revenue deficit of the Union government, citing the targets set by the Fiscal Responsibility and Budget Management Act and its rules. (Fiscal deficit= When the government’s non-borrowed receipts fall short of its entire expenditure, it has to borrow money from the public to meet the shortfall. The excess of total expenditure over total non-borrowed receipts is called the fiscal deficit.) The new commission has made an order that new borrowing by the government in a financial year cannot exceed 3 per cent of the country’s GDP that year.
In the final stage of budget preparation, the finance minister examines the budget proposals prepared by the ministry and makes changes in them, if required. The finance minister consults the prime minister, and also briefs the Union Cabinet, about the budget at this stage. If there is any conflict between any ministry and the finance ministry with regard to the budget, the matter is supposed to be resolved by the Cabinet.
In the final stage, the budget division in the finance ministry consolidates all figures to be presented in the budget and prepares the final budget documents. The National Informatics Centre (NIC) helps the budget division in the process of consolidation of the budget data, which has been fully computerised. At the end of this process, the finance minister takes the permission of the president of India for presenting the Union budget to Parliament.
As per the Constitution, the Union budget is to be presented in the Lok Sabha on such a day as the president may direct. By convention, Union budget has been presented in Lok Sabha by the finance minister on the last working day of the month of February every year.
The finance minister, by convention, makes a speech while introducing the budget. The annual financial statement is laid on the table of Rajya Sabha only after the finance minister concludes his budget speech in Lok Sabha. The budget documents are made available to the members of Parliament after the finance bill has been introduced in Lok Sabha, and the House has been adjourned for the day.
It may be noted that the budget process in India lacks transparency in one aspect: while enactment of the Budget by the legislature and the review of its implementation are reasonably transparent, the process of budget preparation by the government is carried out behind closed doors.
Now I would like to add a few terms, which you’ll find often when the finance minister presents the budget on Feb. 28th.
- CONSOLIDATED FUND: This is the most important of all the government funds. All revenues raised by the government, money borrowed and receipts from loans given by the government flow into the consolidated fund of India. Also no money can be withdrawn from this fund without Parliament’s approval.
- CAPITAL RECEIPT/EXPENDITURE: All receipts and expenditure that liquidate or create an asset would in general be under capital account.
- CORPORATION TAX: Tax on profits of companies.
- SECURITIES TRANSACTION TAX (STT): Sale of any asset (shares, property etc.) results in loss or profit. Depending on the time the asset is held, such profits and losses are categorised as long term or short-term capital gain/loss.
- CUSTOMS: Taxes imposed on imports.
- FRINGE BENEFIT TAX (FBT): The taxation of perquisites — or fringe benefits — provided by an employer to his employees, in addition to the cash salary or wages paid, is fringe benefit tax. It was introduced in the 2005-2006 budget.
- CUSTOMS: Taxes imposed on imports.
- UNION EXCISE DUTY: Duties imposed on goods manufactured in the country.
- TREASURY BILL (T-BILLS): These are bonds (debt securities) with maturity of less than a year. These are issued to meet short-term mismatches in receipts and expenditure. Bonds of longer maturity are called dated securities.
- CESS: This is an additional levy on the basic tax liability. Governments resort to cesses for meeting specific expenditure.
- COUNTERVAILING DUTIES (CVD): Countervailing duty is a tax imposed on imports, over and above the basic import duty. CVD is at par with the excise duty paid by the domestic manufacturers of similar goods.
- EXPORT DUTY: This is a tax levied on exports. In most instances the object is not revenue but to discourage exports of certain items.
- FINANCE BILL: The proposals of government for levy of new taxes, modification of the existing tax structure or continuance of the existing tax structure beyond the period approved by Parliament are submitted to Parliament through this bill.
- SURCHARGE: As the name suggests, this is an additional charge or tax. A surcharge of 10% on a tax rate of 30% effectively raises the combined tax burden to 33%.
- SUBVENTION: The term subvention finds a mention in almost every Budget. It refers to a grant of money in aid or support, mostly by the government.
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