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5 terms you will hear in Budget 2015
The Union Budget is the biggest event in the financial world. It can help a country grow and cause it to slow down further. It can also spell the difference between profit and loss for companies across the country.
Finance Minister Arun Jaitley is slated to present the Union Budget for the fiscal year 2015-16 on February 28.
Ahead of the Budget, here are five key terms you will hear in the Budget speech:
The government is the biggest spender in the country. In a welfare state like ours, the government often spends to provide for key services like health and infrastructure to the public. However, not all of its spending is productive. This is why markets eye the government' expenditure pattern closely, especially capital expenditure. This is the productive part of the government's spending, used for creating better infrastructure and providing better services. Capital expenditure is used to create like roads, flyovers, buildings, grants and investments, and so on.
The government often intervenes in the market to regulate prices of essential goods and services. It forces companies to sell these products at a lower rate, and then compensates the companies for their loss. This is called subsidy. One of the products subsidized by the government is fertilizers. This is done to enable poor farmers to buy good fertilizers at affordable rates. This year, the government could cut fertilizer subsidy by 4% to Rs 70,000 crore, according to a Reuters report. This is down from Rs 72,970 crore budgeted for fiscal year 2014-15. This move would push up fertilizer prices.
Minimum Alternate Tax:
One of the key changes expected in the Budget this year is a revision of the Minimum Alternate Tax. This is a tax profit-making companies pay to the government over and above the tax paid on income. It was originally introduced to ensure no profit-making company could avoid paying tax using exemptions and incentives. Thus, it was announced to plug a loop-hole in the system. However, the MAT pushes up a company's tax liabilities drastically. Currently, the government is looking for ways to enhance manufacturing in India. It would thus seek to encourage small and medium-scale companies to produce. One way to do so is reduce MAT, which currently stands at 18.5%.
Goods and Service Tax (GST):
The current indirect tax structure is bulky and difficult to understand. This is why the government plans to simplify the structure by getting rid of the current multi-tax format. It plans to replace this with the Goods and Service Tax (GST) - a single tax levied by the central and state government. This single tax form would comprise of all the previous taxes. It is considered as the biggest tax reform in the recent past. The GST is expected to be implemented from April 2016. The upcoming Budget is expected to lay the groundwork for this implementation.
Capital, Revenue Receipts:
Receipts are the money the government receives as revenue from tax and other sources. There are two kinds of receipts - capital and revenue receipts. Capital receipts are the money the government receives from loans and borrowings. These are technically classified as debt or liabilities. Revenue receipts are the money the government receives from tax and non-tax sources like share sales. Markets ideally prefer if the proportion of revenue receipts are higher than capital receipts. This is because the government has to pay interest on the money it borrows. This is not so for revenue receipts.
The Union Budget for fiscal year 2015-16 will be the 85th Budget to be presented in independent India. This includes all the interim Budgets announced by a government in an election year. Such Budgets are smaller in scale and valid only for a few months until the newly elected government can present a full budget. The first Union Budget of independent India was announced in November 1947.