Budget Feb 17, 2014
It's that day of the year, when the Finance Minister will declare the Budget. While this year it's an interim budget presented by an outgoing government and hence may not have significant tax related measures, it's important to make sense of the budget. Here are six terms everyone should know, to understand what the FM's budget day speech. Read on.
In English the word budget simply means, where money comes from and where money goes. Loosely put the Union Budget is pretty much the same thing; from where all the government will collect money and where all it will spend the money to run the country and develop it. So the government plans its income and expenditure, this is know a budget.
Fiscal Deficit:When the government's expenditure exceeds its income, it is said to have a fiscal deficit. The government's income is revenue receipts (the money it collects through taxes and the like) plus non-debt capital receipts. Its total expenditure includes loans and net of repayments. A large fiscal deficit is not good news. As per the economic survey, which came out yesterday, the government is likely to meet its fiscal deficit target of 5.3 percent of gross domestic product (GDP) this financial year.
Revenue Deficit:When the government's expected revenue misses the target amount it has hoped to collect, it's a revenue deficit. Of course, this takes place mostly when the government's revenue is less than it had planned for.
Exemption: The word "exempt" means "free from an obligation from doing something". In the case of income tax, "exemption" gives you the freedom to not pay the tax. So, when a particular income is not taxable at all, it's an exemption. Of course, certain income can be exempted from tax provided certain conditions are met. For instance, leave travel allowance amount is exempted from tax, provided certain conditions are met. You get tax exemption on income.
Deduction: The word "deduct" means "to subtract or take away from the total". Likewise, the word "deduction" as far as income tax goes, means the amount is taken away (reduced) from the total taxable income. Usually when the government wants to encourage savings, they offer deductions for investing in certain instruments and hence lower your taxable income by that extent.
For example, if your gross income is Rs 5 lakh and you invest Rs 1 lakh in an instrument that offers deduction, your total taxable income (income on which tax is due) reduces to Rs 4 lakh. So if your tax liability is, say, 10 percent of your taxable income, after accounting for deduction, you will pay Rs 10,000 less in income tax. For instance, Investment in an equity linked savings scheme is also available for deduction up to Rs 1 lakh this year under Section 80 C. You get tax deduction on payments.
Service Tax: This is a type of indirect tax, which you have to pay for the service you get. In the budget of 2012-13, it was decided by the FM, service tax will have to be paid on all services, barring a negative list of services. In fact, a new negative list came out in July 2012. Example of service tax, is when it's charged on your restaurant bill.
Value added tax: This is an indirect tax just like service tax, but unlike service tax which is paid on service, you have to pay VAT on goods you consume. Since it is applied at every stage of production of the final item, VAT is paid on several occasion. So, the manufacturer pays VAT when he buys raw material. The retailer pays VAT to manufacturer when he buys the finished product. And you, the consumer, pays VAT when you buy the item for the retailer. This actually goes to the government at every stage. VAT varies from state to state and item to item.