Budget & Taxation

Overview

• Budget = Approximation of revenue + expenses for a specific period.
• In India, called Annual Financial Statement (Art. 112).

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Preparation & Presentation

Who Prepares?

• Department of Economic Affairs (Ministry of Finance).

Who Presents?

• Finance Minister.

First Presentations

• 1st Budget → R.K. Shanmukham Chetty
• 2nd Budget → John Mathai

Most Budgets Presented

• Morarji Desai – 10 times
• P. Chidambaram – 9 times
• Pranab Mukherjee – 8 times

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Types of Budgets

• Surplus Budget → Revenue > Expenditure
• Deficit Budget → Expenditure > Revenue
• Balanced Budget → Expenditure = Revenue
  Memory: S >, D <, B =.

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Key Terms

Asset

• Something owned that has economic value.
• Example: Gold, Property

Liability

• Obligation/Debt to be paid.
• Example: Loan repayment

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Components of Budget

Revenue Expenditure

• Salary/Pension
• Subsidy/Grant
• Interest payment
• Maintenance of infrastructure

Capital Expenditure

• Construction of infrastructure
• Purchase of land/machinery
• Investments
• Loan to others
• Repayment of loans

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Deficits (Important for Exams)

Budgetary Deficit

• Overall difference between income and spending.

Revenue Deficit

• Revenue Expenditure – Revenue Receipts

Fiscal Deficit

• Accurate measure of government borrowing.
• Total Expenditure – (Total Receipts – Borrowings)

Primary Deficit

• Fiscal Deficit – Interest Payments

Effective Revenue Deficit

• Revenue Deficit – Grants for capital creation

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Taxation System

Direct Taxes

• Paid directly to government.
• Cannot be transferred to others.
• Usually progressive.
• Examples: Income tax, Wealth tax, Gift tax, Capital gains tax, Corporate tax

Indirect Taxes

• Paid indirectly via intermediaries.
• Can be transferred (tax burden shifted).
• Usually regressive.
• Examples: GST, Excise duty, Customs duty

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GST (Goods & Services Tax)

Key Facts

• Introduced by 101st Constitutional Amendment.
• Became operational: 1 July 2017.
• First state to ratify: Assam.
• GST Council → Constitutional body (Art. 279A).

Composition

• 33 members =
  • 2 from Centre
  • 31 from States/UTs
• Chairperson: Finance Minister

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Special Taxes

Surcharge

• Tax on tax (mainly on rich individuals).

Cess

• Tax for a specific purpose (charged on everyone).

Pigouvian Tax

• Used to reduce negative externalities (pollution, etc.).

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Memory Tricks (Quick Revision)

• 112 = Budget Article (1 budget, 12 months).
• RKS = First Budget → Remember: “R” for “Rajya first”.
• Surplus S >, Deficit D <, Balanced =.
• Direct = D = Directly paid, Indirect = I = In shops.
• GST → 1 July (1 tax for India).
• Fiscal = Borrowing, Primary = Fiscal – Interest.

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