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Indian Budget and Expectations

A budget is a quantitative expression of a plan for a defined period of time. A budget (derived from old French word bougette, purse) is a quantified financial plan for a forthcoming accounting period. 
A "Government Budget" or "The Union Budget of India", referred to as the Annual Financial Statement in Article 112 of the Constitution of India, is the annual budget of the Republic of India, presented each year on the last working day of February by the Finance Minister of India in Parliament.

The budget, which is presented by means of the Financial Bill and the Appropriation bill has to be passed by the House before it can come into effect on April 1, the start of India's financial year.
This document estimates the anticipated government revenues and government expenditures for the ensuing (current) financial year.

The two basic elements of any budget are 
  • Revenues
  • Expenses
In the case of the government, revenues are derived primarily from taxes. Government expenses include spending on current goods and services, which economists call government consumption; government investment expenditures such as infrastructure investment or research expenditure; and transfer payments like unemployment or retirement benefits.

Objectives of a Government Budget:
  • Economic growth
  • Reduction of poverty and unemployment
  • Reduction of inequalities/Redistribution of income
  • Reallocation of resources
  • Price stability/Economic stability
  • Financing and management of public enterprises
Government budgets are of three types:

1. Balanced Budget: Balanced Budget is a budget where receipts are equal to current expenditure. That means that taxes on income and expenditure etc are sufficient to meet payments for goods and services, interest on the national debt etc. 
Symbolically, it can be written as:
Estimated Govt. Receipts = Estimated Govt. Expenditure

2. Surplus Budget: When government receipts are more than government expenditure in the budget, the budget is called a surplus budget. In other words, a surplus budget implies a situation where in government revenue is in excess of government expenditure.
Symbolically, it can be written as:
Estimated Govt. Receipts > Estimated Govt. Expenditure

3. Deficit Budget: When government estimated expenditure exceeds government receipts in the budget, the budget is said to be a deficit budget. In other words, in a eficit budget, government estimated revenue is less than estimated expenditure.
Symbolically, it can be written as:
Deficit Budget = Estimated Govt. Expenditure > Estimated Govt. Receipts

Expectations from Budget 2015-16

Salaried classes:

Raising the Income Tax exemption limit
  • The common man expects the income tax limit to be increased from prevailing Rs 250,000 to Rs 300,000. This would help people save more. Additionally, increase in tax limit will kickstart savings which will ultimately lead to increase in investment and liquidity in the system.
  • The working women’s contribution to the national economy is also increasing slowly but steadily. As an incentive, tax exemption for them too needs to be raised to at least Rs 4 lakh.
Deduction under Section 80C

  • At present consolidated deduction of Rs 1.5 lakh is allowed on all long term and short term serving instruments, including provident fund, pension funds, and equity linked savings scheme etc.
Deduction in respect of payment of premium under life insurance policies

  • Section 80C allows deduction up to Rs 1.5 lakh in respect of payment of premium under life insurance policies and for other specified payments. The other specified payments include amounts invested in mutual funds, bank deposits, payments towards tuition fees etc. The government should provide a separate deduction limit of Rs 1 lakh for investment in various life insurance products.
  • It is suggested to provide for a separate deduction limit of Rs 1 lakh paid to pension funds.
Children education allowance

  • The education sector in India is growing at a phenomenal rate but it still needs significant attention, support and backing. Education allowance is currently exempted up to Rs 100 per month per child for a maximum of 2 children. This should see a change of up to a minimum of Rs 1,000.
Home buyers:

Hiking the cap on interest on home loan

  • People have great expectations from this budget, starting with support to incentivize affordable housing and permit higher tax exemption limits on interest and principal repayments for home buyers.
  • The deduction for interest on housing loans needs to increase from the current limit of Rs 2,00,000 considering the significant rise in rates for residential properties over the past few years. To provide relief to the tax payer this limit should be increased to at least Rs 3 lakh. This will give impetus to the housing industry, thus boosting the economy in the long run.
Payment of principal amount on home loan

  • There is a demand from a wider section that a separate provision should be made for the principal loan amount which is currently included in 80C [under which maximum limit is Rs 1.5 lakh (all inclusive)].
Retail investors:

Launching of equity schemes
  • Deduction in respect of Rajiv Gandhi Equity Savings Scheme: The Rajiv Gandhi Equity Savings Scheme is a tax saving scheme that was announced in the 2012-13 Union Budget aimed at first time retail investors. The scheme is aimed at encouraging the flow of savings of small investors in the domestic capital market, and presents investors with tax benefits provisioned under a new section, 80CCG in the Income Tax Act, 1961. It is recommended to raise the income ceiling to Rs 25 lakh as compared to Rs 12 lakh at present.
Allowing Infrastructure Debt Funds to issue tax saving bonds

  • Infrastructure Debt Funds (IDFs) should be permitted to issue tax savings bonds, and such issuances may be limited to a percentage of the net-worth of the IDF. Such tax-savings bonds, which give retail investors a tax exemption on the interest payable to them, would provide an incentive for greater retail participation in IDFs.
Senior citizens:

  • More room should be given for senior citizens in tax rebate. An increase in the exempted limit for the senior citizens ( above 60 years) , which currently stands at Rs 300,000 to at least Rs 400,000 would give a boost to their retirement funds.
  • Similarly, very senior citizens (above 80 years) who do not come under tax bracket for earnings up to Rs 5 lakh are also expecting a further increase in the exemption limit.

  • Students are hoping that exemptions against education loans can be extended to 10 years from the currently allowed 8 years. 
  • To make domestic higher education more affordable, the government must take adequate steps to decrease education loan rates across the board.

  • Easy loan facility should be made available to farmers at a cheaper rate or without interest if they require loan for agriculture purpose.

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