Fundamentals of Union Budget & Budget 2015-16

-B.V.Raghunandan

AJ Institute of Management,

Mangalore

April 7, 2015

Meaning of Union Budget

• Financial Statement containing the estimated revenue and proposed expenditure of the Union Government of India

• According to the Constitution, the Government has to prepare a Budget annually

• The Union Finance Minister presents it in the Lok Sabha on the last working day of February

• Conventionally called Government Budget

Objectives of a Government Budget

• Accelerating Economic Growth

• Alleviating Poverty and Unemployment

• Reduction of Inequalities in income and wealth

• Redistribution of Income

• Investment in Socially Productive Sectors

• Maintaining Price and Economic Stability

• Financing and Management of PSUs

Coverage of the Budget

• Revenue and expenditure of three consecutive years

• In the Budget presented in 2015, revenue and expenditure for three consecutive years

1. Actual Figures for 2013-14

2. Revised Estimates for the year 2014-15

3. Budget Estimates for the year 2015-16

Receipts

• Capital Receipts

• Revenue Receipts

Capital Receipts

Capital Receipts:

1. LT Borrowings: Creating a long-term liability like issue of Government Bonds

2. Provident Funds: LT Liability

3. Reduction of LT Assets: Receiving repayment of loan given to State Governments

4. Disinvestment: Sale of shares of PSUs held by Union Government to the public or institutions (offer for sale)

Revenue Receipts: Tax Revenue

• Revenue Receipts:

A] Tax Revenue:

(1) Direct Taxes: Income Tax, Corporate Tax, Dividend Distribution Tax, Wealth Tax, Gift Tax, Estate Duty, Expenditure Tax, STT and CTT

(2) Indirect Taxes: Excise Duty, Customs Duty, Sales Tax, Service Tax, Entertainment Tax

B] Non-Tax Revenue: Interest Receipts, Receipt of Dividend, Fees & Fines, External Grants and Special Assessment

Revenue Receipts: Non-Tax Revenues

B] Non-Tax Revenues

1) Receipt of Interest on Loans advanced to state governments and others

2) Dividend on Investment (From PSUs)

3) Fees and Fines Collected

4) External Grants received from International Bodies and Others

5) Special Assessments

Principles of Taxation

• Efforts to increase direct taxes rather than indirect taxes

• IT Rates at a higher rate than wealth tax, wealth tax rate is higher than estate duty

• Taxes are for redistribution of income and wealth

• Earlier, high tax regime and now, low tax rates, better compliance and wider tax base (KelkarCommittee)

Expenditure

• Expenditure is divided into:

A] Plan Expenditure and

B] Non-Plan Expenditure

Plan Expenditure

• Expenditure provided for the achieving the Five Year Plan objectives are called Plan Expenditure

• They include both capital expenditure and revenue expenditure

• Plan Expenditure includes expenditure on

1. Electricity generation

2. Irrigation and Rural Development

3. Construction of roads, bridges and canals

4. science, technology, environment

5. Assistance given to State Governments and Union Territories for funding their Plans

Non-Plan Expenditure

• Non-Plan Expenditure is expenditure incurred other than plan expenditure

• Government spends mainly on1. Providing goods and services to citizens 2. Subsidies (Food and Oil)3. Maintaining law and order through police force, judiciary

etc4. Internal Security like intelligence agencies5. External Security like Defence6. Administrative Expenses7. Staff Salary8. Pension for the Retired Staff

Background of Union Budget 2015-16

• First Normal Budget by Jaitley

• In the wake of Abolition of Planning Commission

• Need to convince the people that the government is for inclusive growth and not necessarily pro-business

• Need to get out of industrial sluggishness

Tax Proposals-Direct TaxProposals

• No change in personal income tax

• Reduction of corporate tax from 30 to 25% over next four years

• Penalty for concealment of income-300%

• Quoting Pan is compulsory for purchases above Rs. 1 lakh

• Abolition of wealth tax-replaced by additional 2% surcharge on income above Rs.1 crore

Direct Tax Proposals-Continued

• Deduction in respect of Mediclaim premium increased from Rs.15,000 to Rs.25,000 (For senior citizens, 20,000 to 30,000)

• Additional Deduction of Rs.25,000 to physically challenged persons

• 80 CCD-Additional Deduction of Rs. 50,000 towards New Pension Scheme

• 80 C-Sukanya Samriddi Scheme• Transport Allowance Deduction , raised from

Rs.800 to Rs.1,600

Indirect Tax Proposals

• Bringing in Goods & Services Tax

• Central Excise Duty , increased from 12.36% to 12.5%

• Footware costing more than Rs.1,000 to attract 6% excise duty

• Service Tax-enhanced from 12.26% to 14%

• 1005 reduction towards contribution to SwachhBharath or Clean Ganga Fund

• Duty on polythene, increased from 12% to 15%

Financial Management

• Establishment of NITI Ayog

• Creation of Public Debt Management Agency

• Merging Forward Markets Commission with SEBI

• Creation of a Monetary Policy Committee

• Gold Monetisation Scheme and Sovereign Gold Bond and Developing Indian Gold Coins with Ashok Chakra

HR and Education

• Deen Dayal Upadhyay Grameen KaushalYojana at Rs.1,500 crore for skill development

• Pradhan Mantri VidyaLakshmi Karyakrama to minotor student scholarship and educational loan scheme

• IIT in Karnataka

• AIIMS in J&K, Punjab, TN, HP and Assam

Infrastructure

• Creation of National Investment & Infrastructure Fund

• Atal Innovation Mission included in NITI

• 5 New Ultra Mega Power Project of 4,000 MW each

• Proposal of Tax Free Infrastructure Bonds

• Rural Infrastructure Development Bank with Rs.25,000 crore

• Micro-Irrigation Programme- Rs. 5,300 crore

Social Security Programme

• Pradhan Mantri Suraksha Bima Yojana to cover accidental death risk upto Rs. 2 lakh for premium of Rs.12

• Pradhan Mantri Jeevan Jyothi Yojana to cover accidental and natural death upto Rs. 2 lakh for a premium of Rs.330

• Atal Pension Yojana to provide defined pension

• Rs.1,000 crore more is allocated for Nirbhay Yojana

• Unclaimed deposit of Rs.3,000 crore in PPF to be used for subsidising the above schemes

• MUDRA Bank for refinancing microfinance institutions to help SC/ST borrowers

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