How to decode the Union Budget
Here’s a primer that explains how to decipher its impact on your personal finances
Union Finance Minister Nirmala Sitharaman recently launched the Union Budget Mobile App ahead of the presentation of Budget 2021-22. The app will ensure hassle-free access to Budget documents, which is a good thing. But it needs to be understood too. In this article, we shall discuss how to go about comprehending the Budget’s impact on your finances.
The Union Budget gives an account of the government's finances for the fiscal year. Suresh Surana, founder, RSM India says, “It is an annual statement of the estimated revenues and expenses for the coming year, along with tax proposals. It also provides the actual financial data for the preceding year.”
The Budget has two parts— A and B. For a taxpayer, Part B is the key as it contains information on changes in incometax slabs and tax rates. To understand the Union Budget better, you need to understand a few terms.
Capital Budget: It has 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 (market loans), the government’s borrowings from the Reserve Bank of India and other parties through the sale of treasury bills, loans received from foreign governments and bodies, disinvestment receipts, and loan recoveries from the State and Union Territory governments and other parties.” Capital payments consist of capital expenditure made on the acquisition of assets like land, buildings, machinery, equipment, investments in shares, etc.
Revenue Budget: It consists of the government’s revenue receipts (tax and non-tax) and
its expenditures. 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.” According to Vivek Jalan, partner, Tax Connect Advisory Services, “If the receipts anticipated are more than the expenditures, it's a surplus Budget. But if it’s the other way round, it's a deficit Budget. The deficit as a percentage of receipts is called the fiscal deficit. 'Budget at a glance' gives a good understanding of this aspect.” The Finance Bill contains proposals to amend taxes or existing tax structures (if needed) by the finance minister.
Basic exemption limit: A threshold limit has been fixed to provide relief to individuals having low income. Kapil Rana, founder and chairman, Hostbooks, says, “This is the maximum amount of income not subject to income tax. Any person whose total income exceeds this limit is subject to taxation.”
Surcharge and cess: These are additional taxes levied on the basic tax payable by an assessee. Surana explains, “Surcharge is levied when a taxpayer’s income surpasses the prescribed threshold. Cess is levied on all taxpayers with the intent to promote services such as health and education.”
Deduction: Deduction means the amount that is reduced from total taxable income. Surana says, “To offer incentives on specific investments, the government provides deductions. The taxable income is reduced by the total investment made in the specified eligible instruments.” For instance, under Section 80C, the taxpayer can reduce his taxable income by up to ~1,50,000 by investing in the eligible instruments. Certain deductions are available on specific incomes, such as Section 80TTA, which is on interest from savings bank account.
Exemption: A particular income is an exemption when it is not taxable at all. Agricultural income, the share of profit of a partner in a partnership firm, interest on Nonresident (External) Account, gratuity received under Section 10(10), leave travel concession under Section 10(5), are exempt, subject to certain conditions. Surana says, “Deductions are allowed to be reduced from the total income of the taxpayer whereas exempt income does not form a part of the total income at all.”
Capital gains: These arise on the transfer of a capital asset and are subject to income tax. Capital gains are classified as short-term and long-term. If an asset has been held for more than the prescribed holding period, it is classified as longterm, and vice-versa. Longterm capital gains are taxed at a lower rate.
As far as personal finance goes, the memorandum explaining the provisions of Finance Bill 2021 will be the important document to look at. One should also look at the tax tables in the Finance Bill. Jalan adds that consumers may look at the memorandum to see on which items customs duty or other tax rates have been raised or lowered, as this will impact the prices they have to pay.