Budget, Taxation and GST — TNPSC Group II/IIA Economy
Overview
The Union Budget is the annual financial statement of India's government. Taxation — direct and indirect — is how the government earns revenue. GST revolutionised India's indirect tax system. For TNPSC Group 2/2A, master budget terminology, tax types, and GST structure.
Union Budget
Constitutional Provision
- Article 112: Annual Financial Statement — budget presented before Parliament
- Presented by: Finance Minister (on the first day of February since 2017)
- Previously: Last day of February (British era tradition)
- Vote on Account (Article 116): Spending allowed before budget is passed
Budget Components
| Component | Description |
|---|
| Revenue Budget | Revenue receipts and expenditure |
| Capital Budget | Capital receipts and expenditure |
| Consolidated Fund | All government revenues collected here; Parliament approves all withdrawals |
| Contingency Fund | Emergency fund; Rs 500 crore; PM and Finance Minister can authorise |
| Public Account | Money held in trust for specific purposes |
Revenue Receipts vs Capital Receipts
| Revenue Receipts | Capital Receipts |
|---|
| Tax revenues (income tax, GST) | Borrowings (market loans, external debt) |
| Non-tax revenues (dividends, fees) | Disinvestment (selling government stake) |
| Do not create liability | Create liability or reduce assets |
Revenue Expenditure vs Capital Expenditure
| Revenue Expenditure | Capital Expenditure |
|---|
| Salaries, pensions | Building roads, dams, schools |
| Subsidies (food, fertilizer) | Defence equipment purchase |
| Interest payments | Capital grants to states |
| Does not create assets | Creates or improves assets |
Key Budget Concepts
| Term | Definition |
|---|
| Fiscal Deficit | Total Expenditure – (Revenue Receipts + Non-debt Capital Receipts) |
| Revenue Deficit | Revenue Expenditure – Revenue Receipts |
| Primary Deficit | Fiscal Deficit – Interest Payments |
| Current Account Deficit (CAD) | Imports > Exports (trade deficit) |
| Budget Deficit | Total Expenditure – Total Receipts (including borrowings) |
FRBM Act (Fiscal Responsibility and Budget Management Act, 2003)
- Target: Fiscal Deficit at 3% of GDP
- Revenue Deficit: Eliminate revenue deficit
- Modified after COVID — path being readjusted
Direct Taxes
Direct taxes are paid directly by the person/entity to the government.
Income Tax
- Tax on income of individuals and companies
- Individual tax slabs (New Regime 2024–25):
| Income Slab | Tax Rate |
|---|
| Up to Rs 3 lakh | Nil |
| Rs 3–7 lakh | 5% |
| Rs 7–10 lakh | 10% |
| Rs 10–12 lakh | 15% |
| Rs 12–15 lakh | 20% |
| Above Rs 15 lakh | 30% |
- Standard deduction: Rs 75,000 (salaried)
- Rebate under 87A: Zero tax if income up to Rs 7 lakh (new regime)
Corporate Tax
- Tax on profits of companies
- Domestic companies: 22% (reduced from 30% in 2019)
- New domestic manufacturing companies: 15%
- Foreign companies: 40%
Other Direct Taxes
- Capital Gains Tax: Tax on profit from sale of assets (STCG, LTCG)
- Wealth Tax: Abolished in 2015
- Securities Transaction Tax (STT): On stock market transactions
Central Board of Direct Taxes (CBDT)
- Administers income tax, TDS, corporate tax
- Under Ministry of Finance
Indirect Taxes
Indirect taxes are collected by intermediaries (sellers) and passed to the government.
Pre-GST Indirect Taxes (Before July 2017)
| Tax | Collected by |
|---|
| Central Excise Duty | Central Govt (on manufacturing) |
| Service Tax | Central Govt (on services) |
| VAT (Value Added Tax) | State Govt (on goods) |
| CST (Central Sales Tax) | Central Govt (on inter-state sales) |
| Octroi / Entry Tax | Local bodies |
All these were replaced by GST from July 1, 2017.
GST (Goods and Services Tax)
Key Features
| Feature | Details |
|---|
| Type | Destination-based, multi-stage, comprehensive |
| Constitutional basis | 101st Amendment (2016) |
| Implemented | July 1, 2017 |
| Governing body | GST Council |
| Dual structure | CGST + SGST (or IGST for inter-state) |
Types of GST
| Type | Full Form | Applied When | Who Gets |
|---|
| CGST | Central Goods and Services Tax | Within state | Central Govt |
| SGST | State Goods and Services Tax | Within state | State Govt |
| IGST | Integrated Goods and Services Tax | Between states/imports | Centre (distributes to states) |
| UTGST | Union Territory GST | Within UT | UT |
GST Rates (Tax Slabs)
| Slab | Examples |
|---|
| 0% (Exempt) | Fresh fruits/vegetables, milk, eggs, unbranded flour/rice/pulses, sindoor, printed books |
| 3% | Gold, silver, gems and jewellery |
| 5% | Edible oil, tea, coffee, spices, fish, kerosene, healthcare services, essential medicines |
| 12% | Computers, processed food, butter, ghee, cheese, almonds |
| 18% | Most goods, soaps, toothpaste, hair oil, AC restaurants, telecom services |
| 28% | Luxury goods, tobacco, aerated drinks, automobiles, cement, large TVs |
GST Council
| Aspect | Details |
|---|
| Article | 279A (added by 101st Amendment) |
| Composition | Union Finance Minister (Chairman) + State Finance Ministers |
| Voting | Centre has 1/3rd vote; States together have 2/3rd vote |
| Quorum | 50% of members |
| Decisions | 3/4th majority |
Input Tax Credit (ITC)
- Businesses can claim credit for GST paid on inputs
- Reduces cascading effect of taxes
- Example: Manufacturer pays GST on raw material; can deduct this when collecting GST on finished product
GST's Impact
- Replaced 17 central and state taxes
- One Nation, One Tax philosophy
- Reduced cascading effect
- Simplified compliance
- Tax base expanded
- Challenge: Complex filing requirements; SMEs faced difficulties initially
CBIC (Central Board of Indirect Taxes and Customs)
- Administers GST, Customs Duty, Excise (remaining)
- Under Ministry of Finance
Customs Duty
- Tax on imports and some exports
- Administered by CBIC
- Import duty: Protects domestic industries
- Export duty: On few commodities (to ensure domestic supply)
Key Facts for TNPSC Group II/IIA
- Union Budget: Presented on February 1 (since 2017); Article 112
- Fiscal Deficit: Total Expenditure – Total Revenue Receipts; India targets ~5% of GDP (gradually reducing to 3%)
- GST implemented: July 1, 2017; 101st Amendment (2016)
- GST Council: Finance Minister chairs; states have 2/3rd voting share
- CGST + SGST: Applied simultaneously within a state; each gets 50% of revenue
- IGST: For inter-state transactions; Centre collects and distributes
- GST slabs: 0%, 5%, 12%, 18%, 28% (and special 3% for gold)
- Income Tax: Administered by CBDT; corporate tax reduced to 22% in 2019
- FRBM Act 2003: Targets fiscal deficit at 3% of GDP
- Pre-GST taxes replaced: Central Excise + Service Tax + VAT + CST + Octroi
Previous Year MCQ Patterns
Q: GST in India was implemented from: a) April 1, 2017 b) July 1, 2017 c) January 1, 2018 d) November 1, 2016
Answerb) July 1, 2017 — GST (Goods and Services Tax) was implemented on July 1, 2017, following the 101st Constitutional Amendment enacted in 2016. It replaced 17 central and state taxes. The GST Council is constituted under Article 279A with the Union Finance Minister as Chairman.
Q: Which of the following is NOT a direct tax? a) Income Tax b) Corporate Tax c) Customs Duty d) Capital Gains Tax
Answerc) Customs Duty — Customs Duty is an indirect tax levied on imports (and some exports). It is collected by the government through traders/importers, not directly from the individual. Income Tax, Corporate Tax, and Capital Gains Tax are all direct taxes paid directly by the taxpayer.
Q: The GST Council in India is chaired by: a) Prime Minister b) RBI Governor c) Union Finance Minister d) Chief Justice of India
Answerc) Union Finance Minister — The GST Council, established under Article 279A by the 101st Constitutional Amendment, is chaired by the Union Finance Minister. The council has state Finance Ministers as members. The Centre has 1/3rd voting share while all states together have 2/3rd voting share; decisions require 3/4th majority.
