Government

Budget

ANKIT KUMAR

PGT, ECONOMICS

Meaning of Government Budget

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Government Budget is an annual statement, showing item wise estimates of receipts and expenditure during a Fiscal year.

Important points of Government Budget

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• Budget of Central Government is known as ‘Union Budget’.

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• Estimated expenditures and receipts are planned as per the objectives of the government.

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• Budget is presented in the Parliament. It is required to be approved by the parliament, before it can be implemented.

Objectives of the Government Budget

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Government prepares budget for fulfilling certain objectives. The various objectives of government budget are:

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1. Reallocation of Resources.

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• Reducing inequalities in income and wealth.

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• Economic Stability.

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• Management of Public Enterprises.

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• Economic Growth.

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• Reducing regional disparities.

Components of Budget

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Components of Budget refer to structure of Budget. Two main components of Budget are:

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1. Revenue Budget

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• Capital Budget

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Component of Budget

Budget Receipts

Budget Expenditure

• The Components of budget can also be categorised according to Receipts and Expenditure.

Budget Receipts

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Budget receipts refer to the estimated money receipts of the government from all sources during a given fiscal year.

Budget Receipts

Revenue Receipts

Capital Receipts

Revenue Receipts

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• Revenue Receipts refer to those receipts which neither create any liability nor causes any reduction in the assets of the government.

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• They are regular and recurring in nature and government receives them in its normal course of activities.

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• A receipt is a revenue receipt, if it satisfies the two conditions:

Neither creates a Liability.

Nor reduces an asset.

Revenue Receipts

Tax Revenue

Non-Tax Revenue

Tax Revenue

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• Tax revenue refers to sum total of receipts from taxes and other duties imposed by the government.

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• Tax is a compulsory payment made by people and companies to the government without reference to any direct benefit in return.

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• Tax revenue is the main source of regular receipts of the government.

Tax Revenue

Direct Taxes

Indirect Taxes

Direct Taxes

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• Direct taxes refer to taxes that are imposed on property and income of individuals and companies and are paid directly by them to the government.

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• They are imposed on individuals and companies.

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• The ‘liability to pay the tax’ and ‘actual burden’ of tax lie on the same person.

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• They directly affect the income and purchasing power of people and help to change the level of aggregate demand in the economy.

Indirect Taxes

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• Indirect taxes refer to those taxes which affect the income and property of individuals and companies through their consumption expenditure.

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• They are imposed on goods and services.

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• The ‘liability to pay’ the tax and ‘actual burden’ of the tax lie on different persons.

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• Indirect taxes can be avoided.

Comparison between Direct Taxes And Indirect Taxes

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Basis

Impact

Shift of burden

Nature

Coverage

Direct taxes are levied on individuals and companies.

The burden of a direct tax cannot be sifted.

They are generally progressive in nature.

They have limited reach as they do not reach all the sections of the economy.

Direct Taxes

Indirect Taxes

Indirect taxes are levied on goods and services.

The burden of an indirect tax can be shifted.

They are generally proportional in nature.

They have a wide coverage as they reach all the sections of the society.

Non-Tax Revenue

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Non-Tax revenue refers to receipts of the government from all sources other than those of tax receipts.

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The main sources of non-tax revenue are:

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1. Interest

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• Profits and Dividends

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• Fees

4. License Fee

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5. Fines and Penalties

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6. Escheats

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7. Gifts and Grants

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8.Forfeitures

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9. Special Assessment

Capital Receipts

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• Capital Receipts refer to those receipts which either create a liability or cause a reduction in the assets of the government.

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• They are non-recurring and non-routine in nature.

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• A receipt is a capital receipt, if it satisfies any one of the conditions:

Either creates a Liability.

Or reduces an asset.

Capital Receipts

Borrowings

Recovery of Loans

Other Receipts

Comparison between Revenue Receipts And Capital Receipts

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Basis

Meaning

Nature

Future Obligation

Examples

They neither create any liability nor reduce any asset of the government.

They are regular and recurring in nature.

There is no future obligation to return the amount.

Tax Revenue (like Income Tax)

Non-Tax Revenue (like Interest)

Revenue Receipts

Capital Receipts

They either create any liability or reduce any asset of the Government.

They are irregular and non-recurring in nature.

In case of certain capital receipts, there is future obligation to return the amount.

Borrowing, Disinvestment, etc.

Budget Expenditure

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Budget Expenditure refers to the estimated expenditure of the government during a given fiscal year.

Budget Expenditure

Revenue Expenditure

Capital Expenditure

Revenue Expenditure

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• Revenue Expenditure refers to the expenditure which neither creates any asset nor causes reduction in any liability of the government.

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• It is recurring in nature.

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• It is incurred on normal functioning of the government and provisions for various services.

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• An Expenditure is a revenue expenditure, if it satisfies the two conditions:

Neither creates an asset.

Nor reduces a liability.

Capital Expenditure

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• Capital Expenditure refers to the expenditure which either creates an asset or causes a reduction in the liabilities of the government.

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• It is non-recurring in nature.

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• It adds to capital stock of the economy and increases its productivity through expenditure on long period development programmes.

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• An expenditure is a capital expenditure, if it satisfies any one of the following two conditions:

Either creates an asset.

Or reduces a liability.

Comparison between Revenue Expenditure And Capital Expenditure

Basis

Meaning

Purpose

Nature

Examples

They neither creates any asset nor reduces any liability of the government.

It is incurred for normal running of govt. and provision of various services.

It is recurring in nature.

Salary, pension, interest etc.

Revenue Expenditure

Capital Expenditure

They either creates an asset or reduces a liability of the government.

It is incurred mainly for acquisition of assets and granting of loans and advances.

It is non-recurring in nature.

Repayment of borrowings, expenditure on acquisition of capital assets, etc.

Component of Budget

Budget Receipts

Budget Expenditure

Revenue Receipts

Capital Receipts

Revenue Expenditure

Capital Expenditure

Tax

Non-Tax

Borrowings

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Recovery of Loans

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Other Receipts

Direct Tax

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Indirect Tax

Plan Expenditure

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Plan Expenditure refers to the expenditure that is incurred on the programmes detailed in the current five year plan.

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Non-Plan Expenditure

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Non-plan expenditure refers to the expenditure other than the expenditure related to the current five-year plan.

Developmental Expenditure

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Developmental expenditure refers to the expenditure which is directly related to economic and social development of the country.

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Non-Developmental Expenditure

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Non-Developmental expenditure refers to the expenditure which is incurred on the essential general services of the government.

ANKIT KUMAR

PGT, ECONOMICS

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