10 terms you should track and decipher in the Budget 2021-22 document

Experts say the terms mirror the govt's intentions, priorities and policies and provide a hint of financial resources among various sectors

Union Finance Minister Nirmala Sitharaman recently launched the ‘Union Budget Mobile App’ ahead of the Budget 2021-22 presentation on February 1. The app will ensure hassle-free access to Budget documents, which is a good good thing, but we must understand it too. Kapil Rana, founder & chairman, HostBooks Limited, says: "It becomes necessary to understand the budget documents because by scrutinising them, we can understand the government's intention, its priorities, policies, and allocation of financial resources among various sectors and industries." 

The Union Budget gives an account of the government's finances for the fiscal year that runs from April 1 to March 31. Suresh Surana, founder, RSM India says, "The Budget is an annual exercise that brings forth the annual financial statement for the nation as a whole, that is, a statement of the estimated revenues and expenses for the upcoming year. The Budget for any year would provide the actual financial data or figures for the preceding year and an estimate for the forthcoming year along with the tax proposals."

Understanding the budget document is not easy, but if you read it, you will realise it has two parts, A and B. Rana says, "Part A primarily includes an introduction, highlights related to agriculture, education, economic development, society, financial sector, fiscal management etc." Part B deals largely with direct and indirect taxes. Note that in 2016, Railway budget was merged with the general budget, making the combined announcement an interesting subject matter for commoners. Rana adds, "People are keen to know about the rail fare, freight fare, a number of new routes introduced, new trains introduced etc." So for an ordinary taxpayer, the key information is in Part B, as the income-tax slabs and corresponding rates will be mentioned and if there's any change in these it will directly impact your finances. 

To understand the Union Budget better there are a few terms you need to understand. The experts we spoke to culled out the top-10 terms to decipher the Union Budget. 

Capital Budget: It is made of two parts; capital receipts and capital payments. Naveen Wadhwa, deputy general manager, Taxmann, says, "Capital receipts are loans raised by the government from the public (these are called market loans), borrowings by the government from RBI and other parties through the sale of treasury bills, loans received from foreign governments and bodies, disinvestment receipts and recoveries of loans from State and Union Territory Governments and other parties." Capital payments consist of capital expenditure on acquisition of assets like land, buildings, machinery, equipment, as also investments in shares, etc.

Revenue Budget: It consists of the revenue receipts of the Government (tax and non-tax revenues) and the expenditure met from them . Wadhwa says, "Tax revenues consist of proceeds from taxes and other duties levied by the Union. Revenue expenditure is for the normal running of government departments and for rendering various services." 

Note, that a budget is the estimated financial position of The Government of India, and includes the receipts and expenditure of the GOI in the next year. Vivek Jalan, partner, Tax Connect Advisory Services says, "If the receipts anticipated are more than the expenditures, then it's a surplus budget, but if it's the other way out, then it's a deficit budget. The deficit as a percentage of receipts is called the fiscal deficit, which was seen to be approximately 3.3 per cent or so over the past few years, before the pandemic struck. The document 'budget at a glance' gives a good understanding of this aspect."

The Finance Bill is part of the Union Budget, and contains proposals to amend taxes or existing tax structure (if needed) by Finance Minister. Finance bill is a money bill, which is passed by Lok Sabha, the lower house of Parliament. After receiving approval from Lok Sabha it becomes Finance Act.

Basic Exemption Limit: Rana says, "In order to provide relief to individuals with low income, a threshold limit has been fixed which represents the maximum amount of income not subject to income tax. Any person whose total income exceeds such a threshold limit is subjected to taxation." 

Surcharge & Cess: These are additional charges or additional taxes levied on the basic tax payable by the assessee. Such charges are to be paid over and above the existing basic tax rate of the assessee. Surana explains, "Surcharge is levied when the income of the taxpayer surpasses the prescribed threshold as made applicable for a surcharge to be levied. Whereas, cess is a tax levied on all the taxpayers by the government with an intent to promote services such as health and education." 

Withholding Rate: Withholding Rate is commonly known as Tax Deducted at Source (TDS). Such TDS is deducted by the payer in a transaction, from the specified payment it makes to the recipient. It is claimed by the recipient at the time of filing his tax return.

Household Income: This is the measure of the total income of all members of a particular family. It includes all types of income earned by the family members.

Many get confused between exemption and deduction and use it interchangeably, but that isn't correct. 

Deductions: The word "deduct" means "to subtract or take away from the total". Likewise, the word "deduction" in income tax means the amount is taken away (reduced) from the total taxable income. Surana adds, "In order to offer incentives with respect to specific investments, the government has provided for deductions from the total income of taxpayers. The amount of taxable income is reduced by the amount of investments made in specified eligible instruments and allowed as per the Income Tax laws."  For instance, deduction under section 80C, available for life insurance premium payments, five-year fixed deposits and ELSS, among other investments and contributions, can be claimed as deduction from the taxpayer's total income. Also, certain deductions are available in case of some specific incomes such as that from a savings bank account under section 80TTA.

Exemptions: The word "exempt" means "free from an obligation to do something". In 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. Surana says, "The government has provided for some exempt incomes which are not chargeable to tax." For instance, agricultural income, the share of profit of a partner in a partnership firm, interest on Non-Resident (External) Account, gratuity received u/s 10(10), leave travel concession u/s 10(5), are exempt, subject to certain conditions. Surana adds, "The essential point here is that deductions constitute a component of the total income as they are allowed to be reduced from the total income of the taxpayer whereas exempt income does not form part of the total income." 

Capital Gains: These are the kind that arise on transfer of a capital asset and are subject to income tax. Capital gains are further classified as short-term and long-term on the basis of the period of holding. If the asset had been held for more than the prescribed period of holding, it is classified as long-term whereas if the asset was held for less than the prescribed period of holding, it is classified as short term capital gains and taxed differently.

Extras: Besides the budget speech, a number of other documents are also presented in Parliament (See Box: What the budget primarily includes apart from the Speech). Jalan says, "As far as personal finance goes, the memorandum explaining the provisions of the Finance Bill 2021 will be important to the look at." Further in the finance bill also one must look at the tax tables. The memorandum should be seen to understand the impact of finances on any kind of person, that is, individual, Association of Persons (AOP)/body of individuals (BOI), Company or Firm. Jalan adds, "As a consumer, you may also look at the memorandum to see on which items customs duty or other tax rates have raised or lowered. It could impact the cost of goods or services you buy."

In English, the word budget simply means where the money comes from and where the 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 it to run the country. 

What the budget primarily includes apart from the Speech 

Annual Financial Statement: Shows the estimated receipts and expenditure of the Government of India for upcoming year in relation to estimates for immediate previous year as also actual expenditure for the year preceding the previous year.

Demand for Grants: They are presented to the Lok Sabha along with the Annual Financial Statement. Generally, one Demand for Grant is presented in respect of each Ministry or Department.

Finance Bill: A part of the Union Budget, stipulating all the legal amendments required for the changes in taxation proposed by the Finance Minister

Macro-Economic Framework Statement: Contains an assessment of the GDP growth rate, the domestic economy and the stability of the external sector of the economy, etc.

Medium-term Fiscal Policy-cum-Fiscal Policy Strategy Statement: Sets out the three-year rolling targets for specific fiscal indicators in relation to GDP at market prices

Expenditure Budget: Shows the revenue and capital disbursements of various ministries/departments and presents the estimates in respect of each under 'Plan' and 'Non-Plan'.

Receipt Budget: An extensive document prepared as a part of the Union Budget of India exercise to showcase the break-up of the government's receipts from various income sources.

Budget at a Glance: Presents broad aggregates in a reader-friendly format.

Memorandum Explaining the Provisions in the Finance Bill: Explains the provisions of the changes proposed by the Finance Bill.

Output Outcome Monitoring Framework: Defines the outcome and output for various Central sector schemes with measurable indicators.

Source: https://www.indiabudget.gov.in/ and websites

Five phases of the Budget

1. Presentation: Along with Finance Minister’s speech.

2. General discussions: Held a day after the presentation of the Budget.

3. Voting on ’Demand for Grants’ and Passing of Appropriation Bill: The Lok Sabha votes on these Demands for Grants. The Rajya Sabha can only discuss these demands but not vote on them.

4. Passing of Appropriation Bill: The Appropriation Bill authorises the Union Government to spend money from the Consolidated Fund of India. 

5. Passing of Finance bill: The Bill is passed by the Legislature and assented by the President within 75 days of its introduction.

Source: Taxmann