Union Budget: Perspective for Beginners

Kripananda Chidambaram, 04 Mar 2013

What is a budget?

A budget by definition is a list of all planned incomes and expenses of an entity. The Union Budget refers to the budget of government of India. The role of government of India is to run the nation and ensure the well being of its citizens. Say, you are living in a housing complex and there are 25 apartments. The residents appoint a committee to take care of the complex. The committee is responsible for security, provide and maintain common amenities like elevator, garden, parking, lighting etc. To enjoy these facilities the apartment owners contribute money as maintenance charges to the committee.

In the larger context the so called housing committee is the government we elect. The responsibility of the government is much wider and larger; security of its citizens, infrastructure like roads, railways, power, bridges etc, health care, education and skill development, food security, support for weaker sections etc. To execute this government requires people and resources and for this it needs money.

Where will it get the money? Obviously from its citizens! This 'maintenance charge' is called as tax. In fact the government taxes its citizens directly and indirectly. Direct taxes are taxes paid as a percentage of your income. Income tax, corporate tax, capital gains etc are all examples of direct taxes.

Now over and above this government charges activities based taxes. Like on manufacturing the manufacturer has to pay excise duty, importer of goods need to pay customs duty, service providers - service tax, sellers- VAT etc.

This is how broadly the government gets its money. So every year the government prepares an annual financial statement of income and expense and this is called the Union Budget of India. This is presented on the last day of February month and becomes effective from April of that calendar year. The responsibility of budget lies with the finance minister. In order to become effective it is has to be passed by the parliament.

Is the budget just a financial statement only projecting income and expenses? No, it is in fact also a statement of fiscal (financial) policy. The government can use this as a measure to bring a change in the behavioral pattern.

Let's rewind a bit. Climbing stairs is good for health. To inculcate this, the committee in the housing society can give a discount in maintenance charges to the residents who are willing to not use elevators for 2 floors. The incentive may motivate the residents to act in a particular fashion.

That is exactly what the finance minister tries to do through budget policy measures. Policy measures can influence spending, manufacturing, investments etc.

Union Budget 2013

The central government is estimating to spend Rs 16, 65,297 crores next year for the above said activities. Majority of the expenses will be earned through taxes and a small portion through other sources. Whatever is falling short is called as deficit. How will this be managed? The government will borrow money from people/ institutions.

How the government plans to spend in 2013-14

The government plans its spending under two broad categories- Plan Expenditure and Non Plan Expenditure. Out of the 16 lakh odd crores, 5.5 lakh crores is proposed to be allocated to Plan Expenditure and 11 lakh crores for Non Plan Expenditure.

Plan expenditure is meant for spending on different objectives of the 5-year economic plan of the central government. All the spending in terms of subsidy schemes and assistance, for generating employment, improving infrastructure, health facilities, education and so on, is Plan Expenditure. This figure is estimated after discussions with Planning Commission and ministries concerned.

What the government spends on routine activities is Non Plan Expenditure. This can be for salaries of government employees, grants to state governments, administrative expenses, defence spending, foreign grants, etc.

In the table below we have highlighted how the government has planned its expenditure for the next financial year for your awareness.

Budget allocations

Proposed amount (in crores)

How will it be employed

Scheduled Castes

41,561

For sub-plan meant for SCs

Scheduled Tribes

24,598

For sub-plan meant for STs

Women

97,134

Various programmes meant for women

Children

77,236

Various programmes meant for children

Minorities

3,511 

Schemes and programmes of the Ministry

Disabled

110

Schemes and programmes of the Department

Defence

2,03,672

National security

Jawaharlal Nehru National Urban Renewal Mission (JNNURM)

14,873

Big part of this is for buying 10,000 buses, mainly for the hilly states

Education

65,867 

Programmes like Sarva Siksha Abhiyan, scholarships, libraries, cultural institutions, etc

Integrated Child Development Services (ICDS)

17,70

Tackling maternal and child malnutrition

Health

21,239

Reducing maternal and infant mortality, eradicating communicable diseases, raising sex ratio, etc

National Institute of Sports Coaching

250

Setting up the centre over 3 years

Backward Regions Grant Fund

11,500

For states of Bihar, West Bengal, Bundelkhand region, KBK districts of Odisha and 82 other districts

Drinking water and sanitation

16,660

Programmes of the Ministry of Health & Family Welfare Dept

Rural Development

80,194

NREGA, SGSY, IAY, and other programmes of the Ministry

Agriculture

27,04

For agriculture research & education, transferring technology in agri & allied sectors, interest subvention schemes of RRBs, crop insurance and other activities

Public Sector Banks

14,000

Capital infusion in PSBs to maintain government's majority shareholding

Women's bank

1,000

Initial capital for setting up a women's bank

Post Offices

5,441

Modernize postal network and make post offices part of Core Banking Solution

Institutions of excellence

400

Aligarh Muslim University, Banaras Hindu University, Tata Institute of Social Sciences, Guwahati and Indian National Trust for Art and Cultural Heritage (INTACH)

Textile sector

2,596

Programmes of the Ministry

National Food Security

10,000

Increase production of rice, wheat and pulses

Tax changes

This year the Finance Minister has estimated to spend more in social sectors of education, health care, skill development etc. This is necessary for the welfare of society and for the overall growth of the economy.

Part of these expenditures will be sponsored through tax collection. Although he has not raised income tax slabs he has taken measures to increase tax collections as well.

Direct taxes

Although income tax slabs have not been altered surcharge has been proposed for certain categories of tax payers.

Surcharge applicable to

Current rate

Proposed rate

HNIs with income over Rs 1 crore

Nil

10%

Domestic companies with income over Rs 10 crore

5%

10%

Despite the number of HNIs having income above Rs 1 crore is much higher there are only 48,200 people in the country who have declared their income to be exceeding that. Surcharges will be levied for one year.

But for those earning between Rs 2 lakhs and Rs 5 lakhs a tiny relief will be given. Rs 2000 will be automatically credit as income tax for those in this bracket.

TDS is proposed to be applied on property sale of value over Rs 50 lakhs.

STT applicable on sale or purchase of shares and mutual fund units has been lowered.

First time home buyers, who borrow less than Rs 25 lakhs, have some good news. They will get an additional Rs 1 lakh deduction on interest payment besides the present Rs 1.5 lakhs deduction.

Indirect taxes

Customs duty and excise duty levied on various items have been revised upwards.

Item

Current rate

Proposed rate

Cell phones costing over Rs 2000

1%

6%

SUV

27%

30%

Marble

-

Doubled

Cigarettes

-

Up by 18%

Imported cars costing over $ 40, 000

75%

100%

Imported bikes with engine capacity over 800cc

60%

75%

Imported yachts

10%

25%

Imported set top box

5%

10%

Imported silk

5%

15%

Fine dining is expected to cost more since all A/C restaurants will be charged service tax.

What's your part?

With no change in income tax structure for the average salaried class your life would mostly continue as it is. If you planned to buy a new SUV or cell phone better do it fast. If you plan to avail a home loan less than Rs 25 lakhs wait until the Finance Bill is passed! 


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