Components of Budget in India

Every year, before the financial year in India begins, the Union Finance Minister presents the Union budget in the Parliament. The budget is a document that details how the Government expects to spend in the coming financial year and what its sources of income are. 

The Union budget includes details like what sectors the Government plans to allocate funds to, major economic and fiscal policies and its revenue sources like taxes, duties, and more. 

In this blog, we discuss the Union Budget and its components so that you can understand the potential impact of it on the economy and as a result on your finances. 

What are the Components of the Budget? 

To understand the components of the budget in India, we have to start with the two broad categorisations within the budget: 

1. Revenue budget 

2. Capital budget 

These two categories are further divided into two components each, giving us the four components of the budget. The four components of the budget in India are: 

1. Revenue receipts

2. Revenue expenditures 

3. Capital receipts 

4. Capital expenditures 

Let’s talk about each of these in detail. 

What is the Revenue Budget? 

The Revenue budget focuses on the Government’s short-term financial operations. This is usually for just that financial year. The Revenue Budget includes Revenue Receipts and Revenue Expenditure. 

Revenue Receipts

This is the income side of the Revenue Budget. It includes all the money the Government earns within the year, primarily from:

1. Taxes: Direct taxes like income tax, corporate tax, and indirect taxes like GST, customs duty, etc.

2. Non-tax Revenue: Interest earned on loans given out, dividends from PSUs, fees for services, fines, and penalties.

Revenue Expenditure

This is the expense side. It covers the recurring expenses the Government incurs to keep the country running, such as:

1. Salaries of government employees

2. Pensions

3. Subsidies on food, fuel, and fertilisers

4. Interest payments on existing loans

5. Grants to states and Union Territories

6. Maintenance of government infrastructure and services

What is the Capital Budget? 

The Capital Budget is based on long-term investments and asset creation. It focuses on the future financial well-being of the country. It includes capital receipts and capital expenditure. 

Capital Receipts

This includes funds raised for investments or to repay loans. Sources include:

1. Borrowings from internal sources like the RBI, public and commercial banks and external sources like foreign governments and international institutions

2. Recovery of loans given to states and Union Territories

3. Disinvestment, like selling shares of government-owned companies

Capital Expenditure

This covers expenses that create assets or reduce liabilities, leading to long-term benefits. This could be expenses like: 

1. Building new infrastructure like roads, railways, and airports

2. Investing in education, healthcare, and other social sector projects

3. Acquiring land and buildings

4. Loans and advances are given to states and Union Territories for development projects

Revenue Budget vs. Capital Budget 

The main difference is in their impact on the Government’s financial position. Revenue expenditure is consumed within the year and doesn’t create assets, while capital expenditure creates assets that provide benefits for many years.

Final Thoughts 

Understanding the budget and its components can help you anticipate economic changes. It can help you understand tax policies better and plan your finances accordingly. The budget also tells you about the Government’s priorities for the coming year, which you can use to identify potential investment opportunities and market trends. Changes in government policies for housing, education and health care are also included in the budget. This information can help you plan your finances better. 

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