The budget evolved from a management tool into an obstacle to management - Frank C. Carlucci
The Union Budget 2012-13 is just around the corner. Will the Finance Minister raise income tax limits? When will the Direct Tax Code be implemented? Will home prices become more affordable for the working class? All these questions will be answered on Friday. But before that, let us get acquainted with the basics of the Budget so that it does not seem like gibberish to us on D-Day.
The Union Budget of India, referred to as the Annual Financial Statement in Article 112 of the Constitution of India, is the annual budget of the Republic of India, presented each year on the last working day of February by the Finance Minister of India in Parliament. This budget shows the expected revenues and expenditures of the entire nation in the upcoming financial year.
This year, however, the budget is postponed to March 16, due to the Assembly polls which took place in five states, namely, Uttar Pradesh, Punjab, Uttarakhand, Manipur and Goa.
Imagine the government to be a large family of crores of people. How does the government collect revenues? The revenue comes from direct and indirect taxes, profit made by financial institutions, government undertakings and interest on loans given to government and local bodies.
And how does the government spend the revenues? It deploys the money on various developmental projects of building roads, rail networks and energy as well as critical areas like defence, subsidies, police, education and health care.
If the revenues equal the expenditure, the budget is called a balanced budget. If the revenues are more than the expenditure, the budget is called surplus budget and if the expenditure exceeds revenues, the budget is called a deficit budget.
Now, when we add the nation’s borrowings and other liabilities to the budget deficit, we get what is known as fiscal deficit. It depicts the true picture of a nation’s financial health and hence is included in the union budget. India’s fiscal deficit has been steadily growing over the years and remains an area of great concern.
This time around, the depreciation of the Indian rupee and high prices of crude oil globally, have further pressured the government to control fiscal deficit.
When the rupee depreciates, it loses its value and importing goods from other countries becomes more expensive and more rupees need to be spent.
To meet the country’s energy needs, India imports over 80% of its crude oil. Due to escalating geopolitical tensions in Iran, a major exporter of oil, the cost of crude rose considerably. This high price of oil combined with the depreciating rupee only added pressure to our fiscal deficit situation.
By December 2011 itself, fiscal deficit touched 92.3% of the Government's estimate for the full fiscal year.
Fiscal deficit reaches 92.3% of FY12 goal
One of the ways the Government tries to bridge this gap between income and expenditure is by selling its assets, part of its stake in the public sector companies. An example of this is the recent ONGC stake sale auction.
ONGC auction gets lukewarm response...Stock falls
Limited Interest in ONGC inhibits Indian Govt future Disinvestment plans:Moody's
Let us now come back to the Government’s primary form of revenue: Taxation
Closely linked with money is the concept of taxation which is an important source of revenue for the government. You should have a good idea about taxation since it is charged by the government on any income earned by us - whether through employment or business. So let’s understand what do we mean by taxation?
Taxation is a mandatory contribution made by a person towards the nation’s expenses incurred in the common interest of all public. Tax is of two types:
Direct tax: This type of tax comprises of Income tax, Wealth tax and Gift tax. These are taxes that cannot be passed on to others.
Indirect tax: This type of tax comprises customs duty, excise duty, sales tax and service tax. The burden of paying these taxes can be shifted on to others through a change in prices - for e.g. a wholesaler of goods can add the tax in the price and charge the retailer who can in turn shift the same to the consumer who is the ultimate buyer of the goods.
Let’s understand the concept of Income Tax. Income tax is broadly of two types:
Personal income tax: charged on the income of individuals, families, associations and unregistered firms.
Corporate tax: charged on the income of registered companies and corporations.
For personal income tax, the whole income is divided into different slabs based on income limits and tax is charged on the basis of respective slabs. The rate of tax increases as the income increases.
| INCOME SLAB (Rs)
| Tax as a % of income |
| 0 to 1,80,000
| No Tax |
| 1,80,001 to 5,00,000
| 10% |
| 5,00,001 to 8,00,000
| 20% |
| Above 8,00,000
| 30% |
For women, there is no tax below income of Rs. 190,000 while senior citizens (aged between 60 and 80 years) need not pay tax for income below Rs. 250,000. Very senior citizens (above the age of 80 years) are not liable to pay income tax up till Rs. 500,000 but follow the general bracket Rs. 500,001 onwards.
The general expectation is that income tax limits will be raised in the Union Budget for 2012-13. Let’s wait and watch.
Get acquainted with the terms used during the Budget and its implications. Follow the link below to decode the jargon…
The working class wants the income tax exemption limits raised. Citizens want reimbursement limit for medical expenses increased to Rs.30000. Let us see what is on the common man’s and the industry’s wish list for this year’s budget…
Janta and Industry expectations from the Budget
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