Handout-1 Budget

BUDGET
(Article – 112)
Budget
Receipts Expenditures
Revenue Receipts Capital Receipts Revenue Expenditure Capital Expenditure
Borrowings, Wages, Salaries, Construction of
Disinvestment, Subsidies, National Highways,
Recovery of loans, Payment of interest. Payment of loans
Tax Revenue Non-Tax Revenue .
All kind of taxes, Fees,
Direct Tax, Fines, .
Indirect Tax. Dividend,
Escheat.
Some examples of direct taxes-

STT- Security transaction tax
SGT - Capital Gains tax
Corporate Tax
Wealth Tax (1957) (scrapped in 2017)
MAT (Minimum Alternate Tax)
VAJIRAM & RAVI 1

Revenue Receipts: - Those receipts which are not created by Selling public assets. Apart from
this they do not Increase Public liabilities, it can be divided into two parts.
Tax Revenues Non-Tax Revenues
Direct Taxes
Tax Receipts -
(1) Direct Taxes: Paid by same person on whom it is Imposed.

Example: Income Tax
Old Slabs -
2.5 lakh – No tax
More than 2.5 – 5 L – 5%
More than 5 – 10 L – 20%
10 L – 30%
(2) MAT – (Minimum Alternate Tax)

Imposed on profit of Small Companies and those companies who do not pay corporate tax and
hide it on various exemptions. It is more in news due to retrospective tax. Under it taxes are
imposed on previous years are carry forward.
(3) CGT (Capital Gains Tax)

It is a tax imposed on the profit obtain by Selling of properties. Capital gains tax is imposed on
these types of benefits although it is mostly imposed on profit gains through selling of equities.
In India for the capital gains from short term equities STCG is imposed with 15% rate which in the
annual budget of 2018-19 government has imposed 10% LTCG for the equities held for more than
1 year and gain must be 1 lakh or more.
(4) Security Transaction Tax

Imposed on purchasing and selling of Securities.
It reduces the betting in Share Market.
Indirect Tax
• Imposed on one and paid by another. It is imposed on both goods and services on their
transactions. It is like production tax.
• It is notable that if an item has less elasticity then despite having the high price its demand
would not be affected much.
• If the item is luxurious, then it is highly elastic which means demand fluctuates. If there is
competitive environment then less tax would be forwarded.
E.g: GST, Custom duty, Excise duty, Entertainment tax, Entry duty
VAJIRAM & RAVI 2

Custom Duty
• It is imposed on both Exportable and Importable Items.
• According to WTO it is called as T.B. (Trade Barriers)
Excise Duty
• Imposed on production, It was imposed by central government in terms of CEN VAT. Sales Tax
• Imposed on Selling of Items by State government. Under VAT it is called as SL VAT.
Entry Tax
•For the movement from one State to another, one has to pay entry tax
• Octorai Duty
• Movement from one municipality to another Municipality.
• In Maharashtra it is called as LBT (Local body tax) although other states have already abolished it.
Direct taxes are consider as better than Indirect taxes as: -

1. Direct taxes are progressive in nature which means it is more on higher income group people
while less on lower income group.
2. While indirect taxes are regressive in nature. It means its incidence is more on poor people
and less on rich people.
3. Indirect taxes are attached with goods and Services so it is purchased by both poor and rich.
4. Direct taxes do not affect prices of goods and Services, while indirect taxes do affect prices in
the commodity. Which changes public choice which also affects the production structure.
Which may disturb the ideal distribution of resources and may pulls down GDP.
• At the time of imposition of Direct tax it should always be checked that the rates should be
payable by the people otherwise it will demotivate the people and which may force people to
go for more rest, which can have the following effects:
• Govt tax revenues decrease.
• GDP may decrease.
Escheat:
If there is a death of the owner of a property and the legal heir is minor, then govt will take the
control of the property and after attaining the age of 18 years government hands over the property
to the legal heir and charge some amount for this care taking work called as Escheat.
VAJIRAM & RAVI 3

Special Assessment
It is imposed by the government on the people of a particular area for the developmental activities
done by the government in that area.
Dividend of PSU
Transfer of profit by RBI, ONGC, SBI. etc
Revenue Receipts:
Does not create liabilities also not obtained through selling of public properties.
Capital Receipts:
It may create liabilities and it may also be obtained through selling of public properties.
Disinvestment:
Done by selling of shares of Public Sector Undertaking.
Expenditures
Revenues Expenditure:
• Those expenditures which do not create public assets and also do not decrease public liabilities.
Example:
• Interest payment, Salaries and pensions to government employees, donations, Subsidy.
Capital Expenditures
• These expenditures create public assets and also reduce public liabilities.
Example:
• Repayment of loans, construction of public properties like Metro, National Highway, Airports.
VAJIRAM & RAVI 4

Note
During 1987-88 there was a new classification of government expenditures:
1. Plan expenditure
2. None plan expenditure
• Plan expenditure was formulated by Planning Commission.
Plan Expenditure Non-Plan Expenditure
Central Plan Assistance to Interest Defence Grant Subsidy
Expensed State
Salary / Pension
Loans Grants
Following Institution and Commissions have suggested to Remove Difference between
Plan and Non Plan Expenditure.
• Rangrajan Committee on the analysis of classification of Public Expenditure.
• Bimal Jalan Commission on Efficiency in Public Expenditure
14th Finance Commission
• Planning Commission.
• After the formulation of Niti Ayog. The entire work under plan expenditure is operated under the
finance ministry.
VAJIRAM & RAVI 5

Deficits in Budget
1. Revenue Deficits
Revenue Expenditure – Revenue receipts
2. Budget Deficits
(Total Expenditure) T.E. – T.R. (Total Receipts)
(Revenue Exp.) R.E. + CE (Capital receipt) – RR (Revenue Receipt) + CR (Capital Receipt)
3. Fiscal Deficit
TE – TR
(R.E. + C.E) – (Non-Debt CR + T.R)
4. Primary Deficit
F.D. – Interest payment
5. Effective Revenue Deficit

R.D - Grants to States for capital formation
Before fiscal deficit budget deficit concept was in operation. If the budget deficit was more than zero
than it was being financed by borrowing from reserve bank or by reducing cash balances of
government with RBI. That why it was called as Monetized Deficit because new currency equals to
deficit would come in the economy.
Fiscal Deficit: Introduced on 1st April 1997 on recommendation of Sukhmoi Chakravarty

Committee. It has brought more transparency and accountability in budget making process.
VAJIRAM & RAVI 6

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BUDGET

Revenue Receipts Capital Receipts Revenue Expenditure Capital Expenditure

Borrowings, Wages, Salaries, Construction of

Disinvestment, Subsidies, National Highways,

Recovery of loans, Payment of interest. Payment of loans

Tax Revenue Non-Tax Revenue .

All kind of taxes, Fees,

Direct Tax, Fines, .

Indirect Tax. Dividend,

Some examples of direct taxes-

SGT - Capital Gains tax

Wealth Tax (1957) (scrapped in 2017)

MAT (Minimum Alternate Tax)

VAJIRAM & RAVI 1

Tax Revenues Non-Tax Revenues

(1) Direct Taxes: Paid by same person on whom it is Imposed.

(2) MAT – (Minimum Alternate Tax)

(3) CGT (Capital Gains Tax)

(4) Security Transaction Tax

VAJIRAM & RAVI 2

Direct taxes are consider as better than Indirect taxes as: -

VAJIRAM & RAVI 3

Transfer of profit by RBI, ONGC, SBI. etc

Done by selling of shares of Public Sector Undertaking.

• Interest payment, Salaries and pensions to government employees, donations, Subsidy.

VAJIRAM & RAVI 4

2. None plan expenditure

• Plan expenditure was formulated by Planning Commission.

Plan Expenditure Non-Plan Expenditure

Central Plan Assistance to Interest Defence Grant Subsidy

Following Institution and Commissions have suggested to Remove Difference between

Plan and Non Plan Expenditure.

• Rangrajan Committee on the analysis of classification of Public Expenditure.

• Bimal Jalan Commission on Efficiency in Public Expenditure

14th Finance Commission

VAJIRAM & RAVI 5

5. Effective Revenue Deficit

Fiscal Deficit: Introduced on 1st April 1997 on recommendation of Sukhmoi Chakravarty

VAJIRAM & RAVI 6

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