Public finance and budget process - questions for bank recruitment

Public finance and budget process - questions for bank recruitment

Q1. What is budget?

Ans. The ‘Budget System’ in India was first introduced on 7th April 1860 by James Wilson, the first Indian Finance Member. The budget is the ‘Statement’ of the estimated receipts and expenditure of Government for that year. This ‘Statement’ is called the “Annual Financial Statement”.

Q2. What points are covered in the “Annual Financial Statement”?

Ans. The “Annual Financial Statement” consists of:

- Statements of expenditure.
- Ways and means to raise the revenues.
- An analysis of the actual receipts and expenditure of the closing year.
- The causes of any surplus or deficit in relation to such year.
- An explanation of the economic policy.
- Spending program of the government for the coming year.
- Prospects of revenue.

Q3. How is the “Budget” processed?

Ans. In our parliament two budgets are presented.

1. Railway budget
2. General budget

Both budgets are presented in Lok Sabha. The Railway Budget is presented by the ‘Minister of Railway’ and the General Budget is presented by the ‘Finance Minister’. The Budget speech is represented in two parts:

- PART A –“General Economic Survey” and
- PART B –“taxation proposals”.

One copy of the budget is presented in Rajya Sabha also. After few days the discussion starts on the presented Budget. Budget was discussed in two stages:

- General discussion followed by detailed discussion and
- Voting on demands for grant.

After receiving ‘demands for grants’ and detailed discussion by the different ministries the budget is processed.

Q4. What are “Revenue Receipts”?

Ans. These are the receipts collected by the government from direct and indirect tax, interest dividends, profits from investments and from other receipts.

Q5. What are “Capital Receipts”?

Ans. These receipts are collected from the loans raised from the market, borrowings from RBI, external assistance from Foreign Governments, recoveries of loans and advances etc.

Q6. What do you mean by “Capital Expenditure”?

Ans. It’s the expenditure incurred on acquisition of assets and investments, loans and advances to State Governments.

Q7. What is “Capital Budget”?

Ans. It consists of capital receipts, payments, and incorporate transactions in the Public Account.

Q8. What do you mean by “Plan Expenditure”?

Ans. It is the outline of the various schemes and programs formulated by the various ministries under 5-years plan.

Q9. What do you mean by “Non-plan Expenditure”?

Ans. This is the outside expenditure incurred in keeping with the program formulated under the 5-year plan.

Q10. What is “Zero Based Budget (ZBB)”?

Ans. The method of preparing cash flow budgets and operating plans which starts every year with the lowest level in the organization for the budget or no pre authorized funds is prepared called ZBB. It offers more variety of choices. It increases the participation on manager and its goal is more sharply established and alternative means are explicitly considered.

Q11. What is “Appropriation Bill”?

Ans. After the “demands for grants” are voted, the Parliament approves the withdrawal from the Consolidated fund of the amount for which the votes were collected. Getting the amount from the Consolidated Fund is sought through “Appropriation Bill”.

Q12. What is “Consolidated Fund”?

Ans. It is the most important of all government funds. All government expenditures are made from this fund except the items met from ‘Contingency fund’ and ‘Public Account Fund’. No money can be withdrawn from this fund without Parliament’s approval.

Q13. What is “Contingency Fund”?

Ans. Any urgent expenditure is met from this fund. Rupees 500 crore fund is at the disposal of the president. If any unforeseen expenditure is incurred from this fund requires approval from the parliament and amount withdrawn is returned to the fund from consolidated fund.

Q14. What is “Public Account Fund”?

Ans. This fund is to account for flows for those transactions where the government is merely acting as a banker. The example is provident funds, small savings etc. These funds do not belong to fund to government but the government payback it at some time to their rightful owners. On expenditure from this account Parliament approval is not required.

Q15. What is “Budgetary Deficit”?

Ans. The Budgetary Deficit represents the excess of aggregate expenditure over aggregate receipts for both capital and revenue.

Q16. What is “Fiscal Deficit”?

Ans. It refers to the excess of all expenditures, which includes the capital and revenue plus net lending over total revenue receipts and external grants. This explains the total expenditure and borrowing by the government.

Q17. What is “Primary Deficit”?

Ans. The ‘Primary Deficit’ indicates the precise extent to which current fiscal action affects the indebtedness of Central Government. The formula for measuring it is interest payment minus interest receipts.

Q18. What is “Revenue Deficit”?

Ans. Revenue Deficit is the difference between the total of revenue expenditure including both plan and non-plan over the receipts on revenue account.

Q19. What is “Monetised Deficit”?

Ans. The Monetised Deficit represents the changes in the borrowing of the Central Government from the RBI, so that it captures the monetary impact of fiscal operations.

Q20. What is “Rule of Lapse”?

Ans. The rule of lapse says that all the appropriations granted by the Parliament expire at the end of the financial year. No deduction of unspent budget can be appropriated for meeting the demands in the next financial year. Hence all the utilized funds within the financial year ‘lapse’ at the end.

Q21. What is “Revenue of Central Government”?

Ans. The revenue of Central Government is the receipt estimate on revenue account. This account is divided into two parts: (A) tax revenue (B) non tax revenue.

Q22. In how many parts “Tax Revenue” is divided?

Ans. The tax revenue is divided into three parts:

- Tax on income and expenditure.
- Tax on assets and capital transaction.
- Tax on goods and services.

Q23. In how many parts “Non-Tax Revenue” is divided?

Ans. The non-tax revenue is divided into two parts:

- Fiscal and other services.
- Interest receipts, dividends and profits.

Q24. What are different types “Tax Receipts”?

Ans. Tax comes under “Tax Receipts”:-
- Income tax
- Corporation tax
- Estate duty
- Gift tax
- Custom duty
- Excise duty
- Sales tax

Q25. What are different types of “Non-tax receipts.”?

Ans. Types of Non-Tax Receipts:-

- Fees, license and permits
- Escheat
- Special Assessment
- Fines and Penalties
- Income from Public Enterprises
- Gifts and Grants

Q26. What is “Income Tax”?

Ans. It is the revenue received from the personal income and is distributed between the Centre and the State. It is not collected from every individual, but the amount depends upon the income of the individual. Income tax is basis on the ‘ability to pay’ principle.

Q27. What is “Interest Tax”?

Ans. This tax was abolished by government in 1985 but it was reintroduced again as non-inflationary measure. This tax in imposed on gross interest income of lending institutions like banks, public finance institutions and finance companies.

Q28. What is “Corporation Tax”?

Ans. This tax is imposed on the income of small big companies and it goes to Central Government.

Q29. What is “Fringe Benefit Tax (FBT)”?

Ans. Many companies give perquisites benefits like club facilities as ordinary business expenses, which was escaped from the tax. This tax was introduced in 2005-06 and now the employ have to pay tax (FBT) on a percentage of the expenses incurred on such perquisites.

Q30. What is “Wealth Tax”?

Ans. This tax was abolished by Mr. Manmohan Singh in 1992-93 budgets. It is taken on the productive assets and limited it to non-productive assets like Guest house, residential house, jewelry etc.

Q31. What is “Asset Duty”?

Ans. This tax was abolished by Mr. V P Singh in 1985. It is imposed on the assets held by the individual. It is collected by the Centre but transferred to the State.

Q32. What is “Securities Transaction Tax (STT)”?

Ans. In this tax the investor has to pay small tax on the total consideration paid in share transaction.
Sale of any assets like shares, property etc. results in profit and loss. In 2004-05 budgets the government abolished long term capital gains tax on share and replaces it with STT.

Q33. What is “Banking Cash Transaction Tax (BCTT)”?

Ans. BCTT is a small tax on cash withdrawal from bank exceeding a particular amount in a single day.

Q34. What is “Custom Duty”?

Ans. Tax against imports is called custom duty. Custom duties levied to protect the domestic industry in retaliation against measures by other countries etc.

Q35. What is “Union Excise Duty”?

Ans. These duties are imposed on goods manufactured in the country by the Central Government. These goods are exempted from union excise duties. Excise duties are on sugar, cotton, tobacco, textiles etc.

Q36. What is “Service Tax”?

Ans. It is tax on services like telephone bills, hotel bills etc.

Q37. Give examples of “Direct Tax”?

Ans. Income tax, fringe benefit tax, securities transaction tax and banking cash transaction tax are the examples of direct tax.

Q38. What is “Ways and Means Advance (WMA)?

Ans. RBI’s one of the functions is that it acts as banker for both State and Central Government. It provides temporary support to tide over mismatches in their receipts and payments in the form of advances.

Q39. What is “Central Plan”?

Ans. These are the annual plans essentially the five year plan broken down into five annual installments. By the help of these plans government achieves their objectives of the five year plan. The government supports the central plan which is known as budget support.

Q40. What is “CENVAT”?

Ans. This scheme reduces the cascading effect of indirect taxes on finished products.