Union Finance Minister Nirmala Sitharaman will present her fifth budget on February 1 India It contains the revenue and expenditure of the government for a given financial year and is a voluminous and complex document. Here’s your guide to understanding the various financial jargon you’ll come across in Finance Minister Nirmala Sitharaman’s budget speech.
annual financial statement
Article 112 of the Constitution requires the government to present to Parliament a statement of estimated receipts and expenditure in respect of each financial year – 1st April to 31st March. This statement is the annual financial statement. This statement is the main budget document.
budget estimate
During the budget speech, the allocation of funds for various ministries is outlined. These numbers are called budget estimates. For example, if the government sets aside Rs 1,000 crore for healthcare, this amount is the budget estimate for the healthcare sector. Although these estimates are not final commitments by the government, they are only estimates of the extent of expenditure that the government is willing to go for. The government later also gives a revised estimate of how much it can be increased, although the difference may not be huge.
current account deficit
Current account deficit (CAD) is the shortfall between money received from selling products to other countries and money spent to buy goods and services from other countries. If the value of the goods and services we import exceeds the value of the goods and services we export, the country is said to be in deficit, and the difference between the two values is the CAD. The current account includes net income including interest and dividends, and transfers such as foreign aid.
busted
Governments typically resort to disinvestment as a way to reduce deficits or increase revenues. It could be a non-performing asset, a loss-making company. This helps the government to raise non-tax revenue and exit loss-making enterprises.
direct tax
Direct taxes are those that are levied directly on the taxpayers – income tax, wealth tax or corporation tax.
dividend distribution tax
Dividend Distribution Tax (DDT) is a tax levied on dividends distributed by companies out of profits to shareholders. The 2020 budget did away with dividend distribution tax (DDT) in the hands of the company and instead stipulated that dividend income paid by the company to shareholders would be taxed at the rate of 10 per cent if the amount exceeds Rs. . 5,000 a year.
economic survey
The Economic Survey brings out the economic trends in the country. The survey analyzes trends in sectors such as agricultural and industrial production, infrastructure, imports, exports, employment, money supply and all relevant economic factors affecting the budget. It is presented in the Parliament a day before the budget for the next financial year.
finance bill
Finance Bill is one that deals with the finance of the country which includes taxes, government expenditure, government borrowing, revenue etc. The Union Budget which includes all these is passed in the form of a Finance Bill. It gives effect to the financial proposals of the government.
Treasury policy
The government uses spending and tax policies to control economic conditions and achieve sustainable growth under fiscal policy. A healthy fiscal policy is important to control inflation and increase employment while maintaining the value of the currency. It plays an important role in the management of the economy.
Fiscal deficit
Fiscal deficit is a situation when the expenditure of the government exceeds its revenue in a year. Fiscal deficit is calculated as total revenue less total expenditure. Government revenue comes from revenue receipts, recovery of loans and other receipts of the government. While most countries continue to run deficits in their economies, a surplus is rare. The Fiscal Responsibility and Budget Management Act (FRBM Act), 2003, establishes fiscal discipline to reduce the fiscal deficit in the country.
gross domestic product
Gross Domestic Product (GDP) is the value of goods and services produced within a country during a year. GDP is a measure of a country’s economic output. In India, the contribution to GDP is broadly divided among three sectors – agriculture, industry and services.
indirect tax
An indirect tax is one that is not paid directly by an individual to the government. Indirect taxes are levied on goods and services in the form of Goods and Services Tax (GST).
inflation
Inflation is the measurement of changes in the average price of goods and services at regular intervals.
High inflation hurts the purchasing power of the people and hence the government and policy makers take steps to maintain it at an optimum level. The government addresses the situation with regard to inflation and its impact on the economy.
LTCG – Long Term Capital Gains
Capital gain means profit earned by a person on sale of his investments in assets like stocks, real estate, bonds, commodities are taxed in India. In India, ‘long-term’ and ‘short-term’ have been defined by the Income Tax Act, 1961. While a holding period of one year is considered ‘long-term’ for equities, the same is two
year for real estate.
Minimum Alternate Tax (MAT)
A tax provision known as Minimum Alternate Tax (MAT) was created to bring in these ‘zero-tax paying companies’.
in the net of income tax and making them pay the minimum amount in tax to the government.
non plan expenditure
The total expenditure of the government is divided into two sub-heads – plan and non-plan expenditure. Non-plan expenditure is that which the government spends on unproductive areas. This includes wages, subsidies, loans and interest. Plan expenditure refers to the money set aside for various projects of the ministries. It is spent on wealth creation through sponsored programs and schemes.
outcome budget
The Outcome Budget is a progress report on what various departments have done with the allocations in the previous annual budget. It assesses whether the money has been spent for the purpose for which it was sanctioned.
public account
Money held by the Government in the case of Provident Fund, Small Savings Collection, Income of the Government
Is set aside for expenditure on road development, primary education etc. – is kept in the Public Account. Public account funds do not belong to the government and are to be paid back to individuals and officials at the end
who deposited them.
Quarterly Review of the Economy
India’s GDP is also reviewed quarterly to indicate the progress of the economy every three months of the financial year.
revenue loss
Revenue deficit is that which occurs when the total revenue expenditure of the government exceeds its revenue receipts. It occurs when the actual amount of revenue is not in line with the budgeted revenue.
treasury challan
When the central government approaches the financial market to raise money, it does so by issuing two types of debt instruments – treasury bills and government bonds. Treasury bills are issued when the government needs money for a short period of time. These treasury bills are issued only by the central government, and the interest on them is determined by market forces. Treasury Bills or T-Bills have a maximum maturity period of 364 days.
wealth tax
Wealth tax is levied on the total value of a personal asset and is meant for the affluent classes of luxury assets like jewellery, bullion, yachts and aircraft etc. Currently no such taxing exists, but it is being debated.
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