FINANCE TIP OF THE DAY
Can you afford your loan?!
Know the quantity of loan you can afford. The banks may sanction loan based on your income but you should look at your monthly expenditure and see if you can afford the maximum that banks offer. As a thumb rule, remember not to let your credit exceed 40% of your income!
Is the budget only about taxes?
The first thing an average citizen of India thinks about before any Government Budget is about his/her personal income tax. Discussions during and immediately following the Budget presentation by the Finance Minister is also about income tax slabs and the tax savings instruments. But is the budget presentation only about income tax?
As an “Aam Aadmi” all we know is about our own income and the tax related to it. So it is no wonder that one is curious if not serious about the money that one could retain for himself/herself out of the total income. Traditionally too the Budget presentations have gone into the details of the personal income tax and corporate income tax changes.
Government Budget – Income
The Government Budget however is not just about income tax. It is very similar to our household budget, which has both income and expenses. The government gets its income from the taxes it charges. This comes in different forms: Direct tax and Indirect taxes. Direct taxes are taxes that are charged by the Government directly when income is generated – income tax is a direct tax. Indirect taxes are taxes that include taxes which are not directly charged to the user. These include taxes such as service tax, sales tax, excise duty and customs duty.
The income for the Government also comes from dividends paid by the companies it owns. The other income that the Government gets is from the sales of its assets like shares of companies it owns.
The income for the Government is higher from the indirect taxes than from the direct taxes. Of the direct taxes, the income tax received from individual is a smaller part when compared to the income tax received from companies.
Expenses of the Government
The Government spends on salary for its employees, pension for its past employees, welfare measures for the citizens, maintaining its defence and police forces, developing and maintaining infrastructure, delivering education at all levels, subsidies for food, fuel and fertilizers, various temporary employment schemes and many other not so visible services to its citizens.
Currently our Government is running on a deficit. This means that our Government is spending more than its income. The planned income for the Government was Rs.10 lakh crore. However its planned expenses were Rs.14 lakh crores. This creates a deficit of 40% on the income.
The Government manages the expenses by borrowing from several sources. However this adds to the burden in the future budgets as the interest on its borrowings itself becomes huge. During the last two years we have only been able to service the interest that had to be paid. We repaid only meager amounts of the principal of the loans. This is not sustainable in the long run. This way of borrowing to meet the expenses will only lead to severe crisis, when money is not available for borrowing. The situation can be worse as in the case of Greece now, were the entire world has lost trust on the repayment capacity of the Greek Government.
Balancing the Budget
For a Finance Minister, these are tough times. This is because there are not many avenues to increase the revenue for the Government. Reducing the expenses in many sectors is politically harmful.
It is us as citizens of the country who have to understand that there is no free lunch in this world. If we get something for free from the Government today, we have to ultimately pay for it in one way or the other. If not us, our future generations will definitely have to pay for it.
The way out for us as citizens, to get the best out of any Government is to say no to free-bees and to ask for a responsible Government that will invest in the long term wellness of the country.
This is possible not overnight. But it is possible in a series of positive and responsible budget that works towards reducing the Government’s budget deficit.
The budget is definitely not just about taxes. The budget is more about establishing an income-deficit balance that will be able to sustain a growing country and its citizens with growing aspirations. It is also the role of us as responsible citizens to let go of the attitude of getting as much as possible for free from the Government.