What is Budget?

A budget is an estimation of revenue and expenses over a period of time

 

What is Government Budget?

It is a document prepared by government containing item vise details of estimated Revenue and expenditure of government over next financial year.

What is Government Budget - Teachoo.JPG

Constitutional Requirement of Budget

As per Article 112 of Constitution

It is compulsory to present statement of

Estimated Receipts and Expenditures of Govt

for every financial year

 

Important Points About Govt Budget

1 It is Prepared on Estimated Basis and not actual basis

(As it is about future)

 

2 It is prepared for 1 year

We follow Financial Year (not calendar year)

Example- Budget for Financial year 2020-21 means Budget for Period starting 1 Apr 2020 to 31 Mar 2021

 

3 It is Prepared by all types of Governments

Central Govt, State Govt and Municipality

However, in this chapter, we will study about Central Govt budget which is called Union Budget

 

4 It is presented by Finance Minister in Parliament every year around February

Example

Budget for Financial year 2020-21 means Budget for Period 1 Apr 2020 to 31 Mar 2021. It is Presented in Advance in Feb 2020

Budget for Financial year 2021-22 means Budget for Period 1 Apr 2021to 31 Mar 2022. It is Presented in Advance in Feb 2021

Which Government Prepares Govt Budget in India - Teachoo.JPG

Different Types of Governments In India - Teachoo.JPG

When is Union Budget Presented - Teachoo.JPG

FUNCTIONS OF BUDGET

OR

FUNCTIONS OF TAX AND EXPENDITURE POLICY

 

1 Allocation Function

Government wants to allocate resources towards public goods like National Defence, Roads, Judiciary

If govt wants to increase production of certain goods and services, so it gives tax concessions on these goods

Also govt wants to restrict use of certain goods, for this it increases tax on these goods

Additionally, govt can directly produce goods in some areas like water supply, sanitation etc as these are non-profitable

 

2 Distribution Function

Govt wants to ensure fair distribution of income and reduce inequality between rich and poor

So it charges more tax for rich in the budget and give subsidies and tax concessions to the poor

 

3 Stabilization Function

In case Country is going through recession and decline in demand

Govt increases its public spending in budget to create more demand of goods

In case country is going through inflation

Govt decreases its spending in budget to reduce demand of goods

Functions of Budget - Teachoo.JPG

Note-Functions of Budget are also called Revenue and Expenditure measures of Govt

Example of Revenue & Expenditure measures of govt - Teachoo.JPG

Objectives of Budget

What are Objectives of Budget - Teachoo.JPG

Other Objectives of Budget - Teachoo.JPG

Lets learn about it one by one

1 Allocation Function

Government wants to allocate resources towards public goods like National Defence, Roads, Judiciary

If govt wants to increase production of certain goods and services, so it gives tax concessions on these goods

Also govt wants to restrict use of certain goods, for this it increases tax on these goods

Additionally, govt can directly produce goods in some areas like water supply, sanitation etc as these are non-profitable

 

2 Distribution Function

Govt wants to ensure fair distribution of income and reduce inequality between rich and poor

So it charges more tax for rich in the budget and give subsidies and tax concessions to the poor

 

3 Stabilization Function

In case Country is going through recession and decline in demand

Govt increases its public spending in budget to create more demand of goods

In case country is going through inflation

Govt decreases its spending in budget to reduce demand of goods

 

4 Economic Growth

Govt can spend more on infrastructure like electricity, roads, dams etc

This helps in increase of production

Also govt gives tax concessions to sectors where there are chances of more growth

Example-Tax benefits to Export sector and Software Companies

 

5 Management of Public Enterprises

Business owned by Governments are called Public Enterprises

Example-PSU like SBI,ONGC,BSNL

Govt gets dividend income from these companies

Also if these are not profitable, govt can go for disinvestment and sell it's shares

In both cases, it is a source of Receipt for Govt which can be used to make different expenditure

 

6 Remove Regional Disparities

Some areas of India are less developed while others are more developed

So in order to encourage growth in these areas, govt can give tax concessions or subsidies

This will lead to development of backward areas

 

NCERT Questions

No questions in this part

Other Books

Question 1

In the following questions, select the correct answers:

Which one of the following is an objective of government budget?

  1. Reallocation of resources
  2. Economic stability
  3. Increasing regional disparities
  4. Economic growth
View Answer

 

Question 2

Union Budget is the budget of:

  1. Central Government
  2. State Government
  3. Local Government
  4. Municipal Corporation
View Answer

Question 3

What is the duration of the Union Budget?

  1. Annual
  2. Half-yearly
  3. Two years
  4. Five years
View Answer

Question 4

Union Budget is presented in the Parliament by:

  1. President
  2. Prime Minister
  3. Finance Minister
  4. Home Minister
View Answer

Oswaal Questions

Question 1

Assertion (A): Budget shows monetary policy of the government.

Reason (R): Policy adopted by the Central Bank of an economy in the direction of credit control or money supply is known as Monetary Policy.

Mark the correct choice:

  1. Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of the Assertion (A).
  2. Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the Assertion (A).
  3. Assertion (A) is true, but Reason (R) is false.
  4. Assertion (A) is false, but Reason (R) is true.
View Answer
Go Ad-free

Transcript

What is Government Budget Budget Government Budget It is Estimation of Future Revenue And Future Expenses It is Estimation of Future Revenue And Future Expenses of Government It can be of 1 Day/1 month/ 1 Year It is prepared for 1 Financial Year (Apr-Mar) as per Article 112 of Constitution Note -Govt Budget is also called Revenue and Expenditure Measures of Government Which Government Prepares Govt Budget in India? Different Types of Governments In India Central Govt State Govt Municipality They have Jurisdiction over whole of India They have Jurisdiction over a Particular State Example- Delhi They have Jurisdiction over a Local Area Example- North Delhi Which Government Prepares Govt Budget in India? Different Types of Governments In India Central Govt State Govt Municipality Budget made by them is called Union Budget Budget made by them is called State Budget Budget made by them is called Municipal Budget This we will Study in this Chapter These are not In syllabus When is Union Budget Presented? It is presented By Finance Minister on 1 February in advance for next year FINANCIAL YEAR 2021-22 2022-23 2023-24 PERIOD 1 Apr 2021 to 31 Mar 2021 1 Apr 2022 to 31 Mar 2023 1 Apr 2023 to 31 Mar 2024 PRESENTED BY FM IN Feb-2021 Feb-2022 Feb-2023 Feb-2023 Functions of Budget Allocation Function Distribution Function Stabilization Function It means Proper Allocation of Resources of economy to make Public goods (Road, Bridges etc.) It means Ensuring Fair Distribution of Income It means Stabilize Economy during Recession /inflation These are called Revenue and expenditure Measures of govt in budget Example of Revenue & Expenditure measures of govt Allocation Function Distribution Function Stabilization Function Proper Allocation of Resources Fair Distribution of Income Stabilize the economy If Govt wants to Increase Production It gives Tax Concessions For Rich More tax During Recession Increase Govt spending to create Demand If Govt wants to restrict Use of particular Product It Increase Taxes For poor Give Subsidy /Tax Concession During Inflation Decrease Govt Spending to Reduce Demand What are Objectives of Budget? They are derived from functions of budget Functions of Budget Allocation Function Distribution Function Stabilization Function Proper Allocation of Resources to make Public goods Fair Distribution of Income between Rich and poor Stabilize Economy during recession/ inflation Main Objectives of Budget Proper Allocation of Resources Proper Allocation of Resources to make Public Goods Proper Distribution of Income Ensure Fair Distribution of Income between Rich and Poor Stabilization of Economy Stabilize Economy during recession/ inflation Other Objectives of Budget Boost Economic Growth Example Govt increase spending of Infrastructure to Boost economy) Management of PSU Example (Sale of Shares of Unprofitable PSU to Increase Revenue) Remove Regional Disparities Example Provide Tax concession To set up industries in Backward area)

Maninder Singh's photo - Co-founder, Teachoo

Made by

Maninder Singh

CA Maninder Singh is a Chartered Accountant for the past 14 years and a teacher from the past 18 years. He teaches Science, Economics, Accounting and English at Teachoo