How to read Budget?

How to Read Budget
With the Union Budget only a few days ahead, let us understand what a budget actually is. Budget is a
financial plan of government for a definite period. A budget is a financial document used to project future
income and expenses
Components of Government Budget
The main components or parts of government budget are illustrated below.
Revenue Budget
This financial statement includes the revenue receipts of the government i.e. revenue collected by way
of taxes & other receipts. It also contains the items of expenditure met from such revenue.
Nellore Branch of SIRC of ICAI
Revenue Receipts
These are the incomes which are received by the government from all sources in its ordinary course of
governance. These receipts do not create a liability or lead to a reduction in assets.
Revenue receipts are further classified as tax revenue and non-tax revenue.
 Tax Revenue
Tax revenue consists of the income received from different taxes and other duties levied by the
government. It is a major source of public revenue. Every citizen, by law is bound to pay them and nonpayment
is punishable.
Taxes are of two types, viz., Direct Taxes and Indirect Taxes.
Direct taxes are those taxes which have to be paid by the person on whom they are levied. Its burden
can not be shifted to some one else. E.g. Income tax, property tax, corporation tax, estate duty, etc. are
direct taxes. There is no direct benefit to the tax payer.
Indirect taxes are those taxes which are levied on commodities and services and affect the income of a
person through their consumption expenditure. Here the burden can be shifted to some other person.
E.g. Custom duties, sales tax, services tax, excise duties, etc. are indirect taxes.
Non-Tax Revenue
Apart from taxes, governments also receive revenue from other non-tax sources.
The non-tax sources of public revenue are as follows :-
 Fees
 Fines and penalties
 Profits from public sector enterprises
 Gifts and grants
 Special assessment duty
Nellore Branch of SIRC of ICAI
(2) Revenue Expenditure
What is Revenue Expenditure ?
Revenue expenditure is the expenditure incurred for the routine, usual and normal day to day running of
government departments and provision of various services to citizens. It includes both development and
non-development expenditure of the Central government. Usually expenditures that do not result in the
creations of assets are considered revenue expenditure.
Expenses included in Revenue Expenditure :-
In general revenue expenditure includes following :-
1. Expenditure by the government on consumption of goods and services.
2. Expenditure on agricultural and industrial development, scientific research, education, health and
social services.
3. Expenditure on defence and civil administration.
Capital Budget
This part of the budget includes receipts & expenditure on capital account projected for the next financial
year. Capital budget consists of capital receipts & Capital expenditure.
(a) Capital Receipts
What are Capital Receipts?
Receipts which create a liability or result in a reduction in assets are called capital receipts. They are
obtained by the government by raising funds through borrowings, recovery of loans and disposing of
assets.
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Items included in Capital Receipts
The main items of Capital receipts (income) are :-
1. Loans raised by the government from the public through the sale of bonds and securities. They
are called market loans.
2. Borrowings by government from RBI and other financial institutions through the sale of Treasury
bills.
3. Loans and aids received from foreign countries and other international Organisations like
International Monetary Fund (IMF), World Bank, etc.
4. Receipts from small saving schemes like the National saving scheme, Provident fund, etc.
5. Recoveries of loans granted to state and union territory governments and other parties.
Capital Expenditure
What is Capital Expenditure ?
Any projected expenditure which is incurred for creating asset with a long life is capital expenditure.
Thus, expenditure on land, machines, equipment, irrigation projects, oil exploration and expenditure by
way of investment in long term physical or financial assets are capital expenditure.
Source: Service tax counsellor

C A Shah D J
Detroit MI
USA