Understanding Budget Terminology

Financial terms we hear on the day of Budget aren't really words used in day-to-day conversations. Here is a list of few relevant terms that you may have heard during the Union Budget presentation or related news. It is always good to be informed.

Fiscal year: Also known as financial year is the period used by a government for its accounting and budget purposes. For example, the fiscal period for India and Japan is from 1st April to 31st March of the next calendar year. The fiscal year for Australia starts on 1st of July and ends on 30th June.

Annual Financial Statement: It is what we commonly call 'the Union Budget.' As per Article 112 of the Indian Constitution, a statement of estimated receipts and expenditure is to be presented to the Parliament for the financial period.

Finance Bill: Two bills presented to the Parliament in the Union Budget are Finance bill and Appropriation bill.

Finance bill is the proposal to levy new taxes or modify any existing tax or continuation of existing tax for the upcoming financial year. For example, GST was introduced for the financial year 2017-18 after the finance bill was passed by the parliament. The bill needs to be passed by the Parliament within 75 days of presentation.

Appropriation Bill: It is a proposal that authorizes the government to withdraw from the Consolidated Fund. This bill is presented to the Lok Sabha. The amount is used to meet the expenditure during the financial year.

Consolidated Fund: All the revenues earned by the government and money borrowed are accumulated in the Consolidated Fund. For planned expenses in the budget proposal, this fund is used with approval from the parliament.

Contingency Fund: This is a reserve fund maintained for emergencies. It is at the disposal of the President and the expenditure incurred is to be approved the Parliament. The amount spent is reimbursed from the Consolidated Fund.

Public Account: It includes funds from those transactions where the government acts like a banker. For example, the provident fund deposits or small savings deposits. No approval from the government is required for spending, as these are basically deposits by the public that the government is liable to return to the depositors at some point.

Fiscal Policy: The government's plan for the economy through its decisions on taxes and spending.

Monetary Policy: The government's plan for the economy through its decisions on money supply and interest rate.

Perquisite tax: Taxes payable by an employer for benefits or incentives given to an employee other than salary.

Securities Transaction Tax: When you buy or sell equity shares, derivatives instrument or other securities, you need to pay securities transaction tax. This tax is included in the price of the security itself and is a very nominal percentage.

Corporate Tax: Taxes paid on income earned by corporates operating in India.

Education Cess: The amount collected from Education Cess is used to fund education that is sponsored by the government in India.

Surcharge: An additional tax is levied on high earnings, i.e., income over Rs one crore.

Swacch Bharat Cess: Applicable on all taxable services, the fund collected goes into the Consolidated Fund to finance initiatives of making India Cleaner.

Non-tax revenue: The Indian government earns revenue from various services it provides to the public like electricity, railways, etc. The revenue earned from these services fall under the non-tax revenue. The major revenue in this category is from interests received on loans sanctioned by the government.

Tax abatement: Exemption or reduction in taxes for a specified period. This is to promote certain activities like investment in some capital expenditure to be undertaken by the government.

Fiscal deficit: A fiscal deficit occurs when a government's expenditure is more than its revenue. This excludes money from borrowings.

Primary deficit: It is fiscal deficit minus the interest payments.

Current account deficit: When a nation's imports exceed its exports.

Revenue deficit: This occurs when the government's actual receipts are less than budgeted receipts.

Capital receipt or expenditure: Any receipt or expenditure that involves dissolving or acquiring an asset comes under capital account. Disinvestment is a capital receipt. It is the act of selling shares of a public sector company. Sale of Indian Petrochemicals Corporation Limited to Reliance Industries is one such example.

Revenue receipt or expenditure: Any receipt or expenditure that does not result in creation or sale of an asset is revenue expenditure. Example for receipt is tax and expenditure is salary.

Ways and means advance (WMA): RBI acts a banker to the State and Central governments. The WMA is a way it provides temporary support to their mismatches in receipts and deposits.

Subvention: Aids provided to certain industries and the general public in the forms of subsidy to promote its growth.

Pass through status: Some incomes are given 'pass through status' to avoid double taxation. For example, mutual funds.

Financial Inclusion: It is a means to ensure access to low income and backward groups to avail banking facilities at cheap rates.