FAQs: Your budget questions answered

It’s important because it shapes the economy and impacts your taxes, investments, and the cost of living.

1. What is the difference between revenue expenditure and capital expenditure?

Answer:

Revenue expenditure refers to government spending on day-to-day operations like salaries, subsidies, and interest payments. These are recurring expenses and don’t create long-term assets.

Capital expenditure, on the other hand, is used for creating or acquiring assets like roads, railways, schools, or hospitals. Think of it as an investment in infrastructure or development projects that yield long-term benefits.

2. What does a tax rebate mean for me?

Answer:

A tax rebate reduces the amount of income tax you owe. For example, if the government announces a rebate of Rs 10,000 for individuals earning below Rs 7 lakh annually, you can subtract Rs 10,000 from your calculated tax liability. It’s like getting a discount on your taxes, resulting in more money staying in your pocket.

Also Read | Tax Exemption: How to keep more of your money

3. What is the Budget, and why is it important?

Answer:

The Budget is the government’s financial plan for the year. It outlines how much money it expects to earn (through taxes and other sources) and how it plans to spend it (on infrastructure, welfare, defence, etc.). It’s important because it shapes the economy and impacts your taxes, investments, and the cost of living.

4. How does the Budget affect the price of goods and services?

Answer:

The Budget can influence the price of goods and services by altering customs duties, excise duties, or other central taxes. For example, reducing customs duty on imported items can make them cheaper, while increasing excise duty on fuel might raise its price.

While GST rates and structures are decided by the GST Council outside the Budget process, the government can announce its intent in the Budget to seek specific GST changes, which the Council may consider later.

5. What is the fiscal deficit, and should I be worried about it?

Answer:

A fiscal deficit is the gap between the government’s total spending and its revenue (excluding borrowings). It shows how much the government needs to borrow to meet its expenses.

You don’t need to worry unless the deficit grows too large, as it could lead to higher borrowing costs and inflation. A manageable fiscal deficit often indicates that the government is investing in growth and development.

Also Read | Revenue Deficit: Showing economic inefficiencies in government operations

6. What is disinvestment, and why does the government do it?

Answer:

Disinvestment means the government selling its stake in public sector enterprises to raise funds. The proceeds are used to reduce the fiscal deficit, fund infrastructure projects, or invest in other development initiatives. It’s like selling a part of your property to finance other important expenses.

7. How does the Budget impact my investments?

Answer:

The Budget can influence stock markets, mutual funds, and fixed-income instruments. Tax policies, incentives for sectors like manufacturing or renewable energy, or changes in capital gains tax can directly affect your investment returns.

8. What is a cess, and how is it different from a tax?

Answer:

A cess is an additional charge on a tax, collected for a specific purpose, like education or health. For example, the education cess is used to fund education initiatives. Unlike regular taxes, cess collections can’t be used for general expenses.

9. How does the Budget address inflation?

Answer:

The government can tackle inflation by controlling spending, reducing taxes on essential goods, or increasing subsidies. For instance, cutting customs duty on food imports could lower prices and help manage inflation.

Also Read | Union Budget vs Vote on Account: What’s the difference?

10. What is deficit financing, and why does the government use it?

Answer:

Deficit financing means the government borrows money to cover its expenses when revenue falls short. It’s often used to fund large-scale projects or stimulate the economy during slowdowns. However, excessive borrowing can lead to higher debt and inflation.

11. What is a tax holiday, and who benefits from it?

Answer:

A tax holiday is a temporary period during which certain businesses or sectors are exempt from paying taxes. It’s typically offered to encourage investment in specific industries, like start-ups, renewable energy, or infrastructure.

12. Why are Budget announcements so focused on agriculture?

Answer:

Agriculture is a significant part of the Indian economy, providing livelihoods to millions. Budget allocations to agriculture aim to boost productivity, ensure food security, and improve rural incomes, which in turn supports overall economic growth.

Also Read | Tax Holiday: A time-out from paying taxes

13. What are tax slabs, and how do they work?

Answer:

Tax slabs are the income brackets that determine how much tax you pay. For example, individuals earning up to Rs 2.5 lakh may pay no tax, while higher earners fall into progressively higher slabs, paying a percentage of their income as tax. This progressive system ensures that those with higher incomes contribute more.

14. What’s the difference between a tax exemption and a tax deduction?

Answer:

A tax exemption means certain types of income (like agricultural income) are not taxed at all. A tax deduction reduces your taxable income, like claiming deductions for investments under Section 80C or home loan interest under Section 24. Both help reduce your tax burden but in different ways.

15. How is a Budget passed in Parliament?

Answer:

The process starts with the Finance Minister presenting the Budget in Parliament. It’s then debated and scrutinised by committees before being put to a vote in both Houses of Parliament. Once approved, it becomes the financial roadmap for the year.

16. How can I benefit from Budget announcements?

Answer:

Look out for changes in tax slabs, new exemptions, or rebates that directly affect your savings. Additionally, Budget allocations to sectors like housing, education, or healthcare could lead to lower costs or more opportunities for you in these areas.

Also Read | How to read and understand Budget speeches, announcements, and documents

17. What is GST, and why is it important?

Answer:

Goods and Services Tax (GST) is a unified tax system that replaced multiple indirect taxes like VAT and excise duty. It simplifies taxation, reduces the tax burden on businesses, and ensures transparency in pricing. GST impacts the cost of almost everything you buy.

18. What are the government’s key revenue sources?

Answer:

The government earns revenue primarily through taxes (income tax, GST, customs duties), dividends from public sector units, and disinvestment proceeds. Non-tax revenue includes fees, fines, and earnings from state-owned enterprises.