What is budget and what are taxes, spends, growth?

The Union Budget for 2021 was announced yesterday. We are sure many of the older children understood what the news was all about.

This article would be useful for the younger ones to get a better understanding of the budget news.

You would have seen your family discuss the monthly budget. This includes the expenses towards food, clothes, rent, school fees, some big purchases like a car, house etc. This is done to plan how much money is needed and how much is our earnings and also how we can afford other large expenses.

Similar to this, the government of every country plans for the country and its people under many heads. This is done so that all expenses, which is the government has to incur for the development of the country, can be met through taxes.

Taxes

What are direct taxes?

• In easy terms, these are the taxes, which we are required to pay to the government on the income we earn, whether through salary, renting and selling of properties, shares, etc. business and professional consulting, lotteries, farming anything.
• Most of the time, the direct tax is deducted in the form of TDS (tax deducted at source). The TDS is deducted by the person making payment like TDS is deducted by companies when they pay salaries. And such a person or company is required to deposit it to the Government.

What are indirect taxes?

• In simple words, Goods and Services Tax (GST) in India is an indirect tax. We pay this tax on the goods and services we buy.
• The person or company charging the tax from us pays it back to the government.

The cycle of revenue and spendings

• The government is the treasurer (one who is responsible for collection and spending) of the money received from both direct and indirect taxes.
• Government announces spends under various schemes and heads under different ministries. These spends are made out of the taxes received by the Government.
• The government prioritises what does the country require for growth. Based on that prioritisation, allocates funds to various schemes.
• Any increase in such taxes also leads to lower disposable income (how much income is left to spend after paying taxes) for citizens. But by allocating money to such schemes, the government ensures that the money goes to the needy.

The Government prepares estimates of future spends and then decides how much taxes to be levied in order to keep up the growth of the country and make those spends. This is the budget process.

 

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