The Union Budget presentation is usually accompanied by a flurry of excitement in the media with experts waxing eloquent on various proposals. But the numbers and the jargon can be quite bewildering to someone who is tuning in for the first time. If you are one such person, here are answers to some of your questions
What’s the Union Budget all about?
The Union Budget is quite similar to your household budget. When you prepare your annual budget, you list the income from various sources followed by the list of your expenses. That lets you gauge if you will have surplus income or if there will be a shortfall, which will have to be bridged by borrowing.
The Union Budget similarly estimates the income and expenditure of the Centre for the next financial year (April 2021 to March 2022). The difference between the two is the surplus or deficit. The States similarly prepare annual statements that capture their income (that includes tax revenue shared by the Centre) and expenses.
Why are receipts and expenses in the Budget being classified as revenue and capital?
The Budget attempts to distinguish between ongoing expenses for running the government and the income needed to sustain these from the expenses for creation of long-term assets. Hence the differentiation.
Revenue receipts include tax and non-tax revenues of the Centre. Non-tax receipts consist of interest and dividend on Centre’s investments and other receipts for services rendered by the Centre. Revenue expenditure includes expenses incurred in the normal running of Government departments and for rendering of various services, making interest payments on debt, subsidies, and grants in aid. All grants given to the State Governments/UTs and others are also treated as revenue expenditure.
Capital receipts are market loans raised by the Centre from the public, the RBI, from foreign governments and bodies, disinvestment receipts and recoveries of loans from State, UTs and others. Capital expenditure consists of expenditure on acquisition of assets like land, buildings, machinery, equipment, as also investments in shares and loans and advances granted by the Central Government to the State and UTs, PSUs and others.
There are so many deficit numbers, which one should I focus on?
The Budget mentions four types of deficits. The fiscal deficit, revenue deficit, effective revenue deficit and primary deficit. The most important of the four is the fiscal deficit that is the difference between total receipts (excluding borrowing) and total expenditure. This number captures the essence of the Centre’s finances; the extent to which the required expenses are being met by the available income. The fiscal deficit also denotes the extent to which the Centre will have to borrow in the fiscal year to meet the revenue shortfall. The focus of the Centre over the last few years has been to be fiscally prudent. The FRBM (Fiscal Responsibility and Budget Management) Act, 2003, had therefore set limits for the fiscal deficit for the Centre. These have, of course, gone for a toss due to the pandemic and a new time-line is now being issued.
The revenue deficit is the difference between revenue receipts and revenue expenditure and shows if the government is being run within the means available. Effective revenue deficit is calculated by excluding the grants given by the Centre to States and Union Territories for creation of capital assets. The primary deficit is obtained by deducting the interest payments on previous borrowings from the fiscal deficit.
What are the sections relevant to me?
If you are a salaried person, you will have to look at the proposed changes in income tax – increase in standard deduction, tweaking of tax slabs, increase in surcharge etc. Tax-breaks can be announced on investments or changes made in taxability of profits or gains from various investments – stocks, debt, insurance, NPS. Watch out for these.
Besides these, tweaks in customs duties on imports can increase or decrease your payouts for purchases. If you run a business, the changes in corporation tax, any new tax breaks relevant to the sector you operate in, will be relevant to you.
Usually the Budget speech does not contain the finer details on tax proposals and you will have to scan the Finance Bill and the Memorandum to get all the details. However note that these are just proposals and the contour of the tax may change when finally passed by the Parliament; many times a proposal gets silently buried too.
What are budget documents that I need to see?
The FM’s speech will give you a good idea of the key proposals and numbers. If you are interested in a quick over-view of the numbers, take a look at the ‘Budget at a Glance’ statement. The new document introduced last year, ‘Budget Highlights’, will also be useful if you do not want to get in to the nitty-gritty.