The government's annual budget is no different from that of a household, only it has

a lot more jargon. In a five-part series, ET will help readers make sense of the key
items of the budget, from revenue account to fiscal deficit. In the first part, we
explain the basic architecture of the budget:

ANNUAL FINANCIAL STATEMENT
The ordinary man confuses the finance minister's budget speech for the annual
budget. But as laid down in the constitution, the budget actually refers to the annual
financial statement tabled in Parliament along with the 13-15 other documents.
Divided into three parts -- Consolidated Fund, Contingency Fund and Public Account -
- it has a statement of receipts and expenditure of each.

CONSOLIDATED FUND
This is the core of the govt's finances. All revenues, money borrowed and receipts
from loans it has given flow into this account. All government expenditure is made
from this fund. Any expenditure from this fund requires the nod of Parliament.

CONTINGENCY FUND
All urgent or unforeseen expenditure is met from this 500-crore fund, which is at the
disposal of the President. Any amount withdrawn from this fund is made good from
the Consolidated Fund.

PUBLIC ACCOUNT
All money in this fund belongs to others, such as public provident fund. The
government is merely working as a banker in respect of this fund.

REVENUE RECEIPT/EXPENDITURE
All receipts like taxes and expenditure like salaries, subsidies and interest payments
that do not entail sale or creation of assets fall under the revenue account.

CAPITAL RECEIPT/EXPENDITURE
Capital account shows all receipts from liquidating (eg. selling shares in a public
sector company) of assets and spending to create assets (lending to receive
interest).

REVENUE VS CAPITAL
The budget has to distinguish all receipts/expenditure on revenue account from
other expenditure. So all receipts in, say, the consolidated fund, are split into
Revenue Budget (revenue account) and Capital Budget (capital account), which
include non-revenue receipts and expenditure.

REVENUE/CAPITAL BUDGET
The govt has to prepare a Revenue Budget (detailing revenue receipts and revenue
expenditure) and a Capital Budget (capital receipts & capital expenditure).

All About Taxes
ET's 2nd piece of a 5-part series helps readers navigate through the maze of tax
jargon:

DIRECT TAXES
It's the tax individuals & companies pay directly to the govt.

Corporation Tax
It's the tax companies pay (30% at present) on their profits.

Taxes On Income Other Than Corp Tax
It's income-tax paid by individuals or 'non-corporate assessees'. This ranges from 10%
to 30%, depending on income.


Securities Transaction Tax (STT)
Applicable if you're dealing in shares or mutual fund units. It was introduced in the
2004-05 budget, replacing the tax on profits earned from the sale of shares held for
more than a year (known as long-term capital gains tax).

Minimum Alternate Tax (MAT)
Indian companies pay 30% tax on profits as per the I-T Act. But tax holidays could
lower the outgo. If a company's tax liability is less than 10% of its profits, it has to
pay a MAT of 15% of book profits. This provision is expected to change once the
direct taxes code (explained below) proposals are accepted. Under DTC, MAT will be
levied on gross assets.

INDIRECT TAXES
It's essentially a tax on expenditure. Considered regressive, this tax does not
distinguish between the rich and the poor and hence most governments prefer to raise
their revenues through direct taxes.

Customs
Anything you bring from abroad comes at a price. By levying a tax on imports, the
government achieves twin objectives: it raises revenues and protects local industries.

Union Excise Duty
Imposed on goods manufactured in the country.

Service Tax
You pay the govt when you eat out or visit your hairdresser -- it is a tax on services
rendered. Levied on 119 activities.

Value-Added Tax
State governments levy this on goods at the point of sale, based on the difference
between the value of the output and the value of inputs used to produce it. The aim
here is to tax a firm only for the value it adds to the inputs, and not the entire input
cost. Thus, VAT helps avoid a cascading of taxes.
TAX REFORMS

GOODS AND SERVICES TAX
The proposed GST is expected to streamline the indirect tax regime. It contains all
indirect taxes levied on goods, including central and state-level taxes. Billed as an
improvement on the VAT system, a uniform GST is expected to create a seamless
national market. It could also mean lower taxes.


DIRECT TAXES CODE
The I-T Act came into effect nearly half a century ago. To account for the new
business and activities that have come since then, the government formulated the
DTC. It proposes to simplify tax laws and include a new way to calculate taxes on
income.