The Budget day speech can vary from mind-boggling, confusing to outright beyond the bounds of comprehension at times. When the finance minister delivers a long speech in the Lok Sabha, do you catch yourself waiting to know what it means for you? For starters, we bring for you a bunch of terms that we have made easy to understand.
1. Direct Tax
This is the tax that you and I directly pay the government on our income and wealth. So, income tax is a direct tax.
Income Tax: Tax levied on both earned income (wages, salaries, commission) and unearned income (rents, interest, dividends). The important ones include:
Personal income tax, levied on incomes of individuals, households, partnerships, and sole-proprietorships.
Corporate income tax, levied on profits of incorporated firms.
2. Indirect Tax
This one’s a double whammy: It is essentially a tax on our expenditure, and includes customs, excise and service tax. You spend, you pay.
3. Union Excise Duty
Made in India? Still, no escape. This is a duty imposed on goods manufactured in the country.
4. Service Tax
Are you a service provider? Accountants, lawyers, IT professionals even chefs in a restaurant, everyone is familiar with this tax. This is what you pay to the government for services rendered.
5. Customs
Like to shop while you travel abroad? Beware what you bring back home. While those iPads may have been cheaper outside, Customs duty will ensure you don’t get away with it.
By levying a tax on imports, the government’s achieving two things – filling its coffers and protecting Indian industry.
6. VAT
Value-Added Tax (VAT) is a more efficient form of taxation. The idea is to tax a good or product only for the value it adds to the manufacturing inputs, and not the entire input cost. Therefore, VAT helps avoid a cascading of taxes as a product passes through different stages of production/value addition.
7. Goods and Services Tax
A uniform tax which is proposed to replace all above mentioned indirect taxes and combine goods and services under a standard fiscal regime. Basically, running around figuring out percentages of taxes imposed will soon get easier. Much easier.
8. Fiscal Deficit
The government often lives beyond its means. Sound familiar? We find ourselves in a similar situation too many times. The government then has to borrow money from the people and financial institutions to meet the shortfall.
When a government’s total expenditures exceed the revenue that it generates, the excess borrowing is called fiscal deficit. It can’t be done away with completely, but if managed at around 3% of GDP, it’s cool.
9. Gross Domestic Product (GDP)
GDP is commonly used as an indicator of the economic health of a country, as well as to gauge a country’s standard of living.
If it’s above 6%, we are set for the new year.
10. Deficit and the GDP
It’s interesting to see where all this fits, in the larger economic picture. The Budget document mentions deficit as a percentage of GDP.
In absolute terms, the fiscal deficit may be large, but if it is small compared to the size of the economy, then it’s not such a bad thing after all.
There is an act known as the Fiscal Responsibilty and Budgetary Management Act ( FRBMA ), which sets targets for our deficits and specifies how much deficit can our economy handle safely.
11. Contingency Fund
As the name indicates, any urgent or unforeseen expenditure is met from this Rs 500-crore fund, which is at the disposal of the President. For desperate measures only.
12. Inflation
Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. Hurts, doesn’t it?
13. Disposable Income
It is the cash you have at hand after ALL the above mentioned taxes are deducted and adjusted. And now, you free to spend or save.
