Budget Glossary: 10 Terms You Should Know Ahead Of Budget 2023

From Annual Financial Statement to Customs duty, a glossary of some important terms to help you interpret the Budget better ahead of FM Nirmala Sitharaman's Union Budget announcement next month

The Union Budget 2023 assumed significance as this will be the last full-fledged Budget of the Modi government ahead of the Lok Sabha elections.

India is all set for one of the biggest events of the year with Finance Minister Nirmala Sitharaman gearing up to present her fifth Union Budget on February 1. The Union Budget 2023 assumed significance as this will be the last full-fledged Budget of the Modi government ahead of the Lok Sabha elections. Finance Minister Nirmala Sitharaman will present her fifth Budget this year. Some of the terms used in the Budget may be difficult to interpret. So, we have compiled a Budget glossary for some of the important terms that can help you interpret it better ahead of the upcoming annual Budget 2023.

Annual Financial Statement

Article 112 of the Constitution mandates the government to provide Parliament with a statement of estimated receipts and expenditure in a financial year - from April 1 to March 31. It is called the annual financial statement and is considered one of the main Budget documents.

Fiscal Deficit

A fiscal deficit is basically the difference between the total revenue and total expenditure of the government. Considered an important budgetary tool for explaining and understanding the budgetary developments in India, it refers to the excess of total expenditure over total receipts (excluding borrowings) during the given fiscal year. It is also an indication of the total borrowings needed by the government. A deficit is usually financed through borrowing from either the central bank or raising money from capital markets by issuing different instruments like treasury bills and bonds.

Consolidated Fund

This is again one of the most important aspects of all government accounts. The revenue received by the government and the expenses made, excluding the exceptional items, are part of the Consolidated Fund. It is to be noted that all government expenditure is made from this fund, except exceptional items which are met from the Contingency Fund or the Public Account.

Finance Bill

Article 110 of the Constitution has defined Finance Bill as the Money Bill.  The Finance Bill is a crucial part of the Union Budget, specifying all the legal amendments required for the changes in taxation proposed by the Finance Minister. The Union Budget proposes several tax changes for the upcoming financial year pertains to several existing laws dealing with various taxes. For example, a Union Budget’s proposed tax changes may require amending the various sections of the Income Tax law, Stamp Act, Money Laundering law, etc. The Finance Bill overrides and makes changes in the existing laws wherever required.

Direct and Indirect Tax

Direct tax is levied on individual or company and payable only by them. It can’t be transferred to anyone else. The most common form of direct tax is income-tax, which has to be paid by individuals, Hindu undivided families (HUFs), cooperative societies and trusts on the total income they earn. This can include income from salary, income from house property, business and professional income, capital gains and income from other sources such as interest. The tax liability depends on the residential status and gender of the person being taxed.

On the other hand, indirect tax is a type of tax where the incidence and impact of taxation does not fall on the same entity. Customs duty, central excise, service tax and value added tax are examples of indirect tax.

Customs duty

The tax imposed on imports and exports of goods is called customs duty. Most often, the Budget mentions cut or hike in Custom duties. The rates of Customs duties are either specific or on ad valorem basis, which means it is based on the value of goods. Rule 3(i) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 describes that the value of imported goods shall be the transaction value adjusted in accordance with the provisions of its Rule 10.

Revenue deficit

The Budget also mentions about revenue deficit that arises when the government’s revenue expenditure exceeds the total revenue receipts. It basically includes those transactions bearing a direct impact on a government’s current income and expenditure. This explains that the government’s own earnings are not sufficient to meet the day-to-day operations of its departments. Revenue deficit turns into borrowings when the government spends more than what it earns and has to resort to the external borrowings.

Subvention

In most Budget, you must have come across the term subvention. For instance last year, budget noted restoring Interest Subvention on short term agriculture loans to 1.5 per cent  for all financial institutions.  It refers to a grant of money in aid or support, mostly by the government. In the Indian context, for instance, the government sometimes asks institutions to provide loans to farmers at below market rates. The loss is usually made good through subventions. The interest subvention is given to public sector banks (PSBs), private lenders, cooperative banks and regional rural banks (RRBs) on the use of their funds and to Nabard for refinancing RRBs and cooperative banks.

Surcharge

As the name goes, this is an additional charge levied on tax. It is levied on the tax payable and not on the income generated. For example, if your income is Rs 300, to which the tax is 20 per cent, and the surcharge is 15 per cent then the total tax burden of an individual would be 35 per cent. A surcharge effectively raises the combined tax burden on the individual.

Capital receipt/Expenditure

All receipts and expenditure that liquidate or create an asset typically come under capital account. Consider an example, if the government sells shares (disinvests) in public sector companies, such as the case of Maruti, it is in effect selling an asset. This particular receipts from the sale would go under capital account. On the other hand, if the government gives someone a loan from which it expects to receive interest, that expenditure would go under the capital account.

In respect of all the funds the government has to prepare a revenue budget (detailing revenue receipts and revenue expenditure) and a capital budget (capital receipts and capital expenditure).