New Delhi, Feb 25: The finance minister will use a lot of budget jargon and terminology in his budget speech, which may be difficult for the common man to understand.
India TV Business simplifies some of the concepts and jargons for you:
Government Revenues & Spending
They are divided under: revenue and capital. Spending is also split into plan and non-plan.
All receipts, such as taxes, and expenditure, like salaries, subsidies and interest payments that in general do not entail sale or creation of assets, fall under the revenue account.
Capital account shows all receipts from liquidating (e.g., selling shares in a public sector company) assets and spending to create assets (e.g., lending to receive interest).
The government has to prepare a Revenue Budget (detailing revenue receipts & revenue expenditure) and a Capital Budget (capital receipts and capital expenditure).
Gross tax revenue
The total tax received by the government from which it has to pay the states their share as mandated by the relevant finance commission. The balance is available to the Union government.
Non-tax revenue or non-tax receipts are government revenue not generated from taxes.
Capital receipts: These include recoveries of loans and advances.
Miscellaneous capital receipts: These are primarily receipts from PSU disinvestment.
Before we understand government spending, it is important to know the concept of plan and non-plan spending and the Central Plan.
Gross budgetary support
The government's support to the Five-Year Plans, which includes state plans, is called Gross Budgetary Support.
The plan expenditure is the government spending on social sector schemes such as Bharat Nirman, rural employment guarantee and National Rural Health Mission.
This is in the nature of consumption expenditure, broadly corresponding to revenue expenditure: interest payments, subsidies, salaries, defence & pensions. Its 'capital' component is small, the largest chunk being defence.
2) And the shortfall
When government's expenditure exceeds its receipts, it has to borrow to meet the shortfall. This deficit has material implication for the economy as bridging it increases public debt and eats up revenues through higher interest payments.
The money borrowed by the government is eventually a burden on the people of India, and is, therefore, called public debt. It is split into two heads: internal debt (money borrowed within the country) and external debt (funds borrowed from non-Indian sources).
Usually the government spends more than what it earns through various sources. This shortfall, which is met with borrowed funds, is called fi scal defi cit. Technically, it is the excess of government expenditure over 'non-borrowed receipts' — revenue receipts plus loan repayments received by the govt plus miscellaneous capital receipts.
It is the excess of revenue expenditure over revenue receipts. All expenditure on revenue account should ideally be met from receipts on revenue account; the revenue defi cit should be zero. In such a situation, the government borrowing will not be for consumption but for creation of assets.
Effective revenue deficit
This is an even tighter number than the revenue deficit. It is revenue defi cit less grants for creation of capital assets.
It is the fiscal deficit less interest payments made by the government on its earlier borrowings.
Securities transaction tax (STT)
STT is the small tax you need to pay on the total amount you pay or receive when you buy or sell shares on stock exchanges or transact in mutual funds. This is in the nature of a transaction tax.
This is the tax individuals pay on their accumulated wealth. It is levied on individuals, HUFs and companies at the rate of 1% on the amount by which the net wealth exceeds Rs30 lakh.
Capital gains tax
It is the tax levied on profi t or gain made on sale of a capital asset such as shares, house, commercial property. Long-term capital gains tax is levied at 10% & short term at the marginal income-tax rate of an assesse.
Dividend distribution tax (DDT)
Dividends are tax free in the hands of investors but the entity distributing dividends to investors pays DDT to govt.
Minimum alternate tax (MAT)
It is often the case that companies report profi ts but pay no tax. Such cos have to pay a certain minimum tax on their book profits.
This is a small tax deducted whenever a payment is made that is like an income for the receiver such as dividends, interest, royalty or even capital gains.
It's essentially a tax on our expenditure, and includes customs, excise and service tax. It is called indirect tax because the tax is paid to the government by the person selling the good or providing service but its final burden is on the consumer. It is considered a 'regressive' tax as the burden is equal whether you're rich or poor.
Anything purchased from another country and brought into India is subject to this tax. It serves a twin purpose, yielding revenues for the government and protecting Indian industry.
Union excise duty
This is a duty imposed on goods manufactured in the country.
It is a tax on services rendered.
A proposed single tax that will replace the plethora of indirect taxes. This will make tax administration effective, compliance easy and evasion diffi cult. Consumers will benefi t from the decline in the incidence of tax.
This fund is the government's lifeline. All the revenues, money borrowed and receipts from loans it has given fl ow into this account. All govt expenditure is made from this fund.
For most of us, this is the all important budget document. All tax measures are included in it. The memorandum, another document, explains the provisions of the Bill in simple terms.
As the name suggests, any urgent or unforeseen expenditure is met from this Rs500 crore fund, which is at the disposal of the President. The amount withdrawn is returned from the Consolidated Fund.
This is an account where the government acts more like a banker, as this is a collection of money belonging to others such as public provident fund.
5) The Social Agenda
This is a co-contributory scheme to promote voluntary retirement savings towards pensions. The government makes a contribution to NPS account of unorganized sector workers.
It is a 12-digit individual identifi cation number that serves as a proof of identity and address, anywhere in India.
Bharat Nirman is UPA's ambitious plan to build infrastructure in rural India: Irrigation, roads, water supply, housing, rural electrifi cation and rural telecom connectivity.
Food security act
The govt plans to provide highly subsidised foodgrain to majority of the population. It is expected to be rolled out in the next fi scal.
This is a government campaign to extend banking facilities through business correspondents to habitations having population in excess of 2,000.
Direct cash transfer of benefits
It is a poverty alleviation initiative under which welfare benefi ts are given directly to the poor in cash (in their bank accounts) rather than in the form of subsidies.
6) & Some More...
Direct taxes code (DTC) Bill
This is a comprehensive revamp of the income tax law that has been in the works for many years.
This is like a discount with reference to taxes. Abatement is given when the tax is not levied on full amount but on a portion of the transaction.
Resources transferred to the states
The Centre gives funds to states in two ways: a share in taxes and budget support for their plans. These are largely in the nature of grants, and include those given to states for managing Centrally-sponsored schemes.
The process of sale of government shares in state-owned entities.
Qualified foreign investors
Foreign individuals, groups or associations that are eligible to invest directly in India. They must be from countries that follow global anti-money laundering rules.
Financial support to a public-private partnership (PPP) infrastructure project to make it viable for the private-sector investor.