Some of the jargon thrown around as part of the Union Budget could sound like Greek and Latin to regular folks. But please don’t keep going “Iska matlab?” like Hansa this budget season. And we hope to god you don’t end up getting your info from a bluff master like Praful Parekh. Because, hey, the Budget’s going to affect each and every one of us in ways both big and small. And it’s important to understand how.
So here’s breaking some of the most oft-used terms and phrases during Budget season. Our list of carefully curated terms should help you catch up and get your investment journey up and kicking.
An Appropriation Bill is a proposed law that allows a government to use public funds. It is also known as a spending bill or a supply bill. In the Indian context, the law authorizes the government to use money from the Consolidated Fund of India. After the appropriation bill is passed, the government may use the money to cover expenses for that fiscal year. The Act is automatically repealed after it meets its statutory purpose.
A balanced budget is one in which the revenues equal the expenditures. This means there is no deficit or surplus in the budget. After incurring and making a record of the whole year’s revenues and expenses, one may deem a budget balanced.
A Blue Sheet is a blue-colored secret budget document that contains key numbers and detailed information about the budget. It serves as a blueprint for the budget and is the backbone of the entire budget process. The blue sheet is kept hidden even from the finance minister. Only the joint secretary (budget) has access.
Budget Estimates refer to the breakdown of the funds a Finance Minister allocates while announcing the Union Budget. The word “estimate” alludes to the fact that they do not reflect the government’s final commitment. Instead, they represent the maximum amount of money the government is willing to spend on a specific task, ministry, or sector.
Capital Gains Tax
Capital Gains Tax is the tax on gains realized from the sale of capital assets. It comprises two types—short-term capital gains tax and long-term capital gains tax. The long-term variety applies to gains arising from the sale of an investment after 12+ months of ownership. The latter applies to gains from the sale of an investment held for less than 12 months. With debt assets, the duration of holding should be less than three years. Read more about it here.
A cess is a type of tax. In India, it is in addition to other existing taxes. The government usually imposes cess for a specific purpose. The Consolidated Fund of India (CFI) stores revenue from taxes such as income tax, and the government can use it for any purpose it sees fit. But the cess funds are only used for the specified purpose after due appropriation from the Parliament.
Consolidated Fund of India (CFI)
The government’s revenues and expenses are combined and preserved in the Consolidated Fund of India (CFI). Except for some items, this fund covers most government expenditures. Withdrawal from CFI requires the approval of the Parliament.
Corporate tax is a direct tax that businesses and corporations pay on their profits. The tax is calculated on the revenue minus all expenses. The deduction includes expenses such as COGS, salaries, wages, interest payments, and depreciation.
Current Account Deficit
Current Account Deficit is a measure of the country’s trade. It is the amount by which the annual value of its imports is higher than its exports. A deficit of this kind does suggest that a country is spending beyond its means, but that’s not necessarily disadvantageous. Developed countries, for example, tend to run deficits.
Customs duty is levied on goods exported or imported into the country. It is an indirect tax. The final consumer of the goods has to shoulder this type of tax. In India, customs duty is levied under the Customs Act of 1962.
In the Indian context, cut motion is a special power vested in members of the Lok Sabha. While the Demand for Grants is made for each ministry during the Budget, if the Parliament feels any government expenditure is more than required, any member of parliament can introduce a cut motion. A cut motion will effectively oppose the change in the expenditure figure. It is a no-confidence vote of sorts.
Direct tax is the tax due by individuals or businesses directly to the government. Income tax, corporation tax, and property tax are all examples of direct taxes. These taxes are unlike indirect taxes such as sales tax, which applies to the buyer, but the seller has to pay them.
Disinvestment is when an organization or government liquidates or sells off shares in a company or subsidiary. Governments often sell off their stakes in a public sector company to raise funds to cover expenses. The Indian government’s disinvestment in the 1990s led to what we now know as liberalization.
Economic Survey of India
The Economic Survey of India is the Finance Ministry’s flagship annual document. The ministry tables it in both houses of the parliament one day ahead of the Union Budget. The document provides a detailed account of the various sectors of the country’s economy in recent years. It also offers a detailed outline of the ministry’s plans for the coming year. The Survey is prepared under the guidance of the Chief Economic Adviser of India.
Excise duty is an indirect tax that applies to the producers of India. The Central Government imposes it on the domestic manufacture, sale, and licensing certain goods. Today, excise duty applies only to petroleum and liquor. It is the opposite of customs duty.
A finance bill is a money bill. In India, it is defined in Article 110 of the Constitution. If the Centre proposes to levy a new tax and amends or continues the existing tax structure, the government has to send a proposal to the Parliament for approval. This proposal is in the form of a Finance Bill. It can only be presented to and approved by the Lok Sabha.
The fiscal deficit is money a government spends in excess of its income. A deficit of this kind occurs when the government’s total expenditure exceeds its revenue—excluding borrowings. To put it another way, fiscal basically means money, and the meaning of deficit is scarcity. So a fiscal deficit is essentially the amount of money that needs to be borrowed to cover expenses.
A fiscal year is another name for a financial year. It refers to a one-year period that governments use for budgeting, accounting, and financial reporting. The fiscal year in India begins on the 1st of April and ends on the 31st of March in the following year. Taxes apply and reports often come out at the end of a fiscal year.
A fiscal policy is a government policy meant to help with financial regulation. It involves the use of government spending and tax policies as tools. The aim is usually to accomplish specific economic goals and drive the economy’s growth.
Goods and Services Tax (GST)
The Goods and Services Tax or GST has been levied on most goods and services in India since 2017. It is a type of indirect tax. So the consumer pays the tax, but the amount is remitted to the government by the business establishment.
Gross Domestic Product (GDP)
A country’s Gross Domestic Product, or GDP, is a metric that measures a nation’s economic health and success. It refers to the total market value of goods and services generated in a nation during a specific time frame—usually a year. GDP is calculated by using expenditures, production, or incomes. It can also be adjusted for inflation and population.
The Halwa Ceremony is a traditional pre-budget event in India. It formally kicks off the printing of various budget documents, marking the completion of the Budget-making process. The ceremony involves the serving of halwa to the Finance Minister and other officials. Among other things, it is meant to recognize the efforts put in by each staff member who is to participate in the budget-making process.
Household income refers to the sum of all the incomes in a household. It could include salary, wages, investment gains, and post-retirement income. Calculating this income includes money flowing in, even if the isn’t used to support the household. Along with family and per capita income, it is one of three types of measures of wealth.
Indirect taxes are taxes that apply to goods and services. The final consumer at the point of sale has to pay the tax. One entity in the supply chain, such as a retailer, collects and passes it on to the government. GST, customs duty, and excise duty are some examples of indirect taxes.
Net Domestic Product (NDP)
Net Domestic Product (NDP) is a measure of the economic output of a nation. It is calculated on an annual basis. To calculate the net domestic product, subtract the depreciation of capital goods from the Gross Domestic Product (GDP) of the country concerned. The higher the NDP, the better the economic health of the country.
Per Capita Income
Per capita income is the average income each person in a given area earns in a given year. It is calculated by dividing the total income of the area by the total population. The measure helps determine the average per-person income in the area and evaluate the quality of life.
Primary Deficit is the difference between the current year’s fiscal deficit and the interest payments on previous borrowings. In other words, it indicates how much the government needs to borrow, excluding interest, to meet its expenses.
Real Estate Investment Trust (REIT)
Real Estate Investment Trusts or REITs are corporations that own, operate, or finance income-producing real estate. Such firms help small investors pool their resources to invest in large commercial real estate projects. They usually manage high-value real estate and mortgages. Those interested may invest in real estate through them by purchasing the company’s stock, mutual funds, or ETFs. The assets on offer include data centers, infrastructure, healthcare units, and even apartment complexes.
The Revenue Budget is the estimated amount a country needs for growth, development, and infrastructure. It includes the government’s revenue receipts, or the returns from taxes and other sources, as well as its expenditures for the fiscal year. Revenue expenditures include expenses that do not lead to the creation of assets.
A revenue deficit is when the government’s projected net income exceeds the net income it manages to actually realize. In other words, a revenue deficit occurs when the budgeted expenses fall short. Governments with a revenue deficit are essentially struggling to make ends meet.
A sin tax is an excise tax. It is imposed on the purchase of some specific items that are considered to be immoral or harmful to society. In India, for example, the government levies a sin tax on tobacco and alcohol to restrict their use.
Security Transaction Tax (STT)
Securities Transaction Tax (STT) refers to the tax on the purchase and sale of securities via Indian stock exchanges. STT is applicable on equity, derivatives, units of equity-oriented mutual funds, and unlisted shares sold under an offer for sale to the public and included in an initial public offering (IPO). The 2004 Union Budget introduced it in India.
A trade deficit occurs when a country’s import of goods and services is higher than its exports during a given time frame. One may also describe a country with a trade deficit as having a negative trade balance. A growing trade deficit is a cause for concern as it weakens the currency. For example, India’s growing trade deficit in relation to the US may lead to the rupee struggling to keep up with the dollar.
Vote on Account
Vote on Account is a provision that offers the government access to funds when the Union Budget faces delays. Although the government presents the budget two months before the end of the fiscal year, occasionally, parliamentary approval may not be possible on time. To bridge the gap in such cases, the Vote on Account provision lets the government ask the Parliament to authorize the spending of some amount of money until it approves the Budget.
Zero-Based Budgeting (ZBB) is a budgeting method. It entails starting from “point zero” or a zero base in every budgeting period. So you create a new budget from scratch every time and justify all expenses for the new period. The main goal is to look at the business with fresh eyes to dismiss or scale back activities that are not required. The Indian government adopted ZBB in 1986 to determine the Expenditure Budget.
If you enjoyed this and want to pick up a few more financial terms, check out our glossary.