Finance Minister Arun Jaitley is all set to present the Union Budget 2017 on February 1. It is the third budget to be presented ever since the Narendra Modi government came to power. This budget is unique in two ways. First, it is being presented much before it’s scheduled time owing to the fact that elections are just round the corner. For all those struggling to understand why Arun Jaitley’s budget presentation on February 1 is such a big deal, here’s a beginners guide.
What is Union Budget?
Union Budget is the most important economic event of our country. It is the planning of our country’s expenditures and revenues for one fiscal year in a systematic way. Unlike the calendar year in which the 1st of January ushers in the new year, a fiscal year or the financial years begins on 1st of April and ends on 31st of March. So, what is the purpose of having a budget? It is much like the household budget we have seen our parents chalk out since childhood. What share of the budget goes into food, clothes, or education?
At the very first place, the government needs money to plan its budget.
Where does this money come from?
Mostly from the citizens’ pockets. To be precise in economic terms, it is through Direct and Indirect taxes.
What is direct tax?
Direct tax is what you pay as taxes from your earning in the form of income tax. Like if you are drawing a salary of Rs 5 lakh a year, a certain amount of your taxable salary will be deducted depending on the slab you fall under. It also includes what corporates or companies pay to the government from their income.
What is indirect tax?
Indirect taxes affect every aspect of our daily life. All the goods and services that we consume – be it working out in a gym or watching a film, buying electronic goods like a refrigerator or a washing machine or a mobile phone – any changes in the figures of indirect taxes affects prices of all the goods and services we consume. Indirect tax constitutes of entertainment tax, value added tax, service tax, excise duty which is the tax paid by manufacturers of goods in India and the Custom Duty which is levied on goods that is imported and exported. Then, there is CESS like the Swachh Bharat cess, education cess etc. which add to the government’s coffers. But the government always has less money to spend for all that needs to be done to run a country. So, borrowing remains the only option. Fiscal deficit represents this gap between the money government has for expenditure and the government’s revenues.
Where does the government spend all its money?
These expenditures include infrastructure projects like roads, hospitals and schools, interest payments, all kinds of subsidies particularly on food, fertilisers, and pesticides, wage and salary payments to government employees, pensions, money for the police services, defence sector, economic loans and grants to different state governments and Union Territories, and grants and loans to foreign governments.
So what can you expect in Budget 2017?
Since the Goods and Services Tax will roll out this July, in all likelihood Finance Minister Arun Jaitley will not make any changes in the existing indirect taxes like service tax, value added tax etc. So your pizza burger, popcorn, and films might hardly see any change of price. That will happen only after GST is rolled out. GST stands for Goods and Services tax which will subsume all indirect taxes into one national tax. It is expected to increase the cost of most goods and services. However, the latest buzz is that contrary to this belief, Jaitley might just go ahead and tinker with the existing indirect taxes to give us a glimpse of the what the costs would look like under the GST regime. This is to avoid any shock on following the roll out in July.
Following demonetisation and crackdown on tax evaders, another major expectation is for income tax exemption limit to go up. Currently, it’s up to Rs 2.5 lakh annually. Experts feel a bonanza of Rs 4 lakh as tax exemption might be announced. Also, with the push on digital transactions, we are expecting incentives on adopting the digital mode of payments. In the same direction, smartphones may become much cheaper.