8/13/2014

KALYAN SIR: BUDGET

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BUDGET
KALYANSIR.COM

IN BRIEF:
(NOTE: I am giving a brief description here for your clarity. Read
all the points carefully. This is the gist of the whole chapter. The
same is explained in detail).

For the development of the nation and for the implementation

of the welfare schemes the government needs to spend money.

When the government is spending money, it also collects

money from the people in the form of taxes.

Hence the budget includes both income and expenditure.

Budget is an anticipated income and expenditure of the
Government.

This is calculated for one year.

This year is called a financial year.

In India the financial year starts on April 1 and ends on March

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In India the financial year starts onKALYAN

AprilSIR:
1 BUDGET
and ends on March
31.

The budget is prepared for the forthcoming financial year.

It means the government plans in advance what will be the

expenditure in the coming financial year.

Once the government is clear about the expenditure that is

going to be incurred in the forthcoming financial year the
government also plans from the income.

Who prepares the budget?

The overall responsibility of the preparation of the budget lies

with the Finance Minister.

Once the preparation of the budget is done the budget is

presented.

The budget is presented in the Parliament with the prior

permission of the President.

The budget is first presented in the Lok Sabha.

The budget should not be presented in the Rajya Sabha first.

In general the budget is presented in the Lok Sabha on the last

working day of February.

Before the presentation of the general budget, the Railway

budget is presented.

The Railway budget is presented 1 or 2 days before the

general budget.

After the general discussion on the budget, voting on demand

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After the general discussion on the budget, voting on demand

for grants takes place.

26 days are allotted for the voting on demands for grants.

The Cut motions take place during these 26 days with the
permission of the Speaker.

The Cut motions are moved by the members of opposition

party.

The Cut motions are meant for reducing the expenditure by

the government.

There are 3 types of cut motions like Policy cut, Economy cut
and token cut.

After this all the demands that are voted together will be put
together and presented again in the Lok Sabha, this is called
Appropriation (Expenditure) bill.

There is no discussion on Appropriation bill and only voting

takes place.
Then the Appropriation bill is forwarded to the Rajya Sabha.
The Rajya Sabha cannot vote on this and only discus and may
give recommendations to the Lok Sabha.
The Lok Sabha may or may not accept the recommendations.
In any case the Rajya Sabha must return the bill to Lok Sabha
within 14 days.
Later the bill is presented to the President for consent.
The Appropriation bill becomes Appropriation Act with the

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The Appropriation bill becomes Appropriation Act with the

consent of the President.

This is the authorization by the Legislature to the Executive to

draw the money from the Consolidated Fund of India.

The Finance bill is also presented in the Lok Sabha.

The Finance bill contains the tax proposals.

The Parliament can reduce or abolish a tax.

The Parliament cannot increase a tax.

After the Finance bill is passed in the Lok Sabha, it is

forwarded to the Rajya Sabha.

The Rajya Sabha has no power with regard to the Finance bill.

The Rajya Sabha must return the bill within 14 days.

The Finance bill is presented to the President for the assent.

The Finance bill becomes the Finance Act with the consent of
the President.

This is the approval of the Parliament to the Executive for the

imposition and collection of the taxes.

The taxes that are collected are credited (deposited) to the

Consolidated Fund of India.

The Consolidated Fund of India is mentioned in the article 266

of the Indian Constitution. (More details are discussed later in this
chapter).

After the completion of the financial year the accounts are

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After the completion of the financial year the accounts are

submitted to the Comptroller and Auditor General of India (CAG).

The CAG audits the accounts.

The CAG submits the report to the President of India.

The report of CAG is placed in front of the parliament by the

President.

The report is verified by the Public Accounts Committee.

The Public Accounts Committee submits the

recommendations back to the Parliament.

HERE IS THE DETAILED EXPLANATION. GO AHEAD.

Budget is an anticipated statement of Income and expenditure of the Government in a

financial year.

WHAT IS A FINANCIAL YEAR?

This is a year for which all the income and expenditure of the
government is calculated.
In India the financial begins on April 1 and ends on March 31.
The financial year may vary from one country to another.

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The word budget is not mentioned in the Constitution.

The word budget is referred to as Annual Financial Statement in the Constitution.
The words Annual Financial Statement is mentioned under article 112 of the Indian
Constitution.

HOW MANY TYPES OF BUDGETS ARE PRESENT IN INDIA?

As India is a federal country the financial aspect is also divided between the Union and
the states.
Hence the state budgets are separate from that of the central budget.
The central budget itself is of 2 types.

Railway budget

General budget

The Railway budget consists of the estimates of revenue (income) and expenditures of
Ministry of Railways.
The General budget consists of estimates of revenue and expenditure of all the ministries
of the government of India except Railways.

WHEN THE RAILWAY BUDGET WAS SEPARATED FROM THE GENERAL

BUDGET?
The Railway budget was separated from the General Budget in the year 1921.
This was separated on the recommendations of the Acworth committee report.
This was also to enable the railways to keep their profits for their own development after
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paying a fixed annual contribution to the general revenues.

PLEASE NOTE:
The budget is presented in the form of a bill.
The budget is presented first in Lok Sabha only.
The budget is presented only with the prior permission of the
President.
The Railway budget is presented first.
The General budget follows the railway budget.
In general the Railway budget is presented by the Railway
Minister.
The general budget is presented by the Finance Minister.
The Railway budget contains 32 demands.
The General budget contains 109 demands.
Out of 109 demands in the General budget
v 103 are civil demands
v 6 are defense demands
The Rajya Sabha has no powers regarding the budget.
The Rajya Sabha should return the money bill within 14 days.

The budget cannot be sent back by the President for the

reconsideration.

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WHAT ARE THE CONSTITUTIONAL PROVISIONS OF THE BUDGET?

The President shall in respect of every financial year cause to be laid before both the
houses of the Parliament a statement of estimated receipts and expenditure of the
government of India for that financial year. (This means that the responsibility of
presentation of budget lies with the President of India).
No demand for a grant shall be made except on the recommendation of the President.

No money shall be withdrawn from the consolidated fund of India except under
appropriation made by law.

No money bill imposing tax shall be introduced in the Parliament except on the
recommendation of the President and such a bill shall not be introduced in the Rajya
Sabha.

Article 265: No tax shall be levied or collected except by the authority of law.
Parliament can reduce or abolish a tax but cannot increase it.
The Constitution also provides the relative positions of both the houses of the Parliament
with regard to the enactment of the budget.
A money bill or finance bill dealing with taxation cannot be introduced in the Rajya
Sabha.
A money bill or finance bill must be introduced only in the Lok Sabha.
The Rajya Sabha has no power to vote on the demand for grants and it is the exclusive
power of the Lok Sabha.
The Rajya Sabha should return the money bill or finance bill within 14 days.
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The Lok Sabha can either accept or reject the recommendations made by the Rajya
Sabha.

The estimates of expenditure embodied in the budget shall show separately the
expenditure charged on the Consolidated Fund of India and the expenditure made from
the Consolidated Fund of India.

The budget shall distinguish expenditure on revenue account from the other expenditure.

THE EXPENDITURE IS OF TWO TYPES.

Expenditure charged.

Expenditure Made.

IN SIMPLE TERMS the charged expenditure includes

Emoluments and allowances of the President and other expenditure

related his office.
The Salaries and allowances of

Chairman of Rajya Sabha

Deputy Chairman of Rajya Sabha

Speaker of Lok Sabha

Deputy Speaker of Lok Sabha

Salaries, allowances and pensions of

Judges of Supreme Court

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Comptroller and Auditor General

Chairman and members of Union Public Service
Commission

Pensions of judges of High Courts

The debt charges for which the government of India is liable,
including interest, sinking fund charges and other expenditure
relating to the raising of the loans and the service and redemption
of debt.
Any sum required to satisfy any judgment, decree, award of any
court or tribunal.

Any other expenditure declared by the Parliament to be so

charged.

WHAT IS EXPENDITURE MADE?

This part of the expenditure is discussed and voted by
the Parliament.

STAGES IN THE ENACTMENT OF THE BUDGET:

There are few steps or stages that the budget should go through before it becomes an act.

Presentation of the Budget

General discussion on the budget (3 to 4 days)

Voting on demand for grants (26 days)

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Consideration and Passing the appropriation bill (expenditure bill)

Consideration and Passing the finance Bill (Tax proposals or income bill)

Let us discuss all these steps in detail.

PRESENTATION OF THE BUDGET:
This is the 1st step in the process of budget.
The Railway budget is presented 1 or 2 days before the General Budget is presented.
It means the Railway budget precedes the general Budget.
Normally, the General Budget is presented on the last working day of February.
Both Railway and General budgets are presented in the Lok Sabha first with the prior
permission of the President.
Budget Speech: The finance minister presents the general budget with a speech called
Budget Speech.
Later the budget is presented to the Rajya Sabha.
The Rajya Sabha has no power to vote but it can discuss the budget.

GENERAL DISCUSSION:
This is the 2nd step in the enactment of the budget.
In general 3 to 4 days are allotted to the general discussion.
The general discussion takes place in both the houses of the Parliament.
During this stage the budget is discussed as a whole or any part of it.

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At the end of the discussion the Finance Minister gives the reply.
NOTE: After the general discussion the house is adjourned for 3 to 4 weeks. During this
time the budget is examined by the 24 standing committees of the Parliament. And the
committees submit the report to the Parliament.
VOTING ON DEMAND FOR GRANTS:

This is the third step in the enactment of the budget.

WHAT IS A DEMAND?

Demand is a proposal.

As we already discussed there are 109 demands in the general

budget and 32 demands in the railway budget.

A demand becomes a grant after it is duly voted.

Hence each demand is presented, discussed and voted to
make it a grant.

The voting on demand for grants takes place only in the Lok Sabha.
26 days are allotted for the voting on demand for grants.
The voting is confined only to the Expenditure Made part of the budget.
NOTE: In the previous page it is explained what is Expenditure made and Charged
expenditure.
EXPENDITURE MADE: This is discussed and voted.

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The expenditure charged on the consolidated fund of India is only discussed and this is
not subject to vote.
All the 141 demands (General budget 109 + Railway Budget 32) are presented.
All the 141 demands are voted separately by the Lok Sabha.
This is the statge the Lok Sabha discuss the details of the budget.
The Speaker allots the time for each demand.

Within the time specified by the Speaker the discussion on the demand must be
completed and the demand is put to vote.

Once the allotted time is over the speaker announces the closure.
Closure means the demand must be put to vote as the allotted time is over.
In general all the demands are not discussed and voted within the allotted 26 days.
Guillotine: This is voting group of demands together that are not discussed.
At the end of the 26th day all the demands that are not discussed are put to vote together
by the Speaker.
During voting on demand for grants Cut Motions are introduced.
Generally the cut motions are introduced by the opposition party members.
The Cut motions are meant to reduce any demand for grant.
CUT MOTIONS:
There are three kinds of cut motions.

Policy Cut

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Economy Cut

Token Cut

All cut motions are introduced only during the voting on demand for grants.
The cut motions are introduced, if the Speaker accepts them.
The cut motions are generally introduced by the members of the opposition parties.
Since the government enjoys the majority in Lok Sabha the cut motions are not passed.
If the cut motions are passed in the Lok Sabha that is an expression of no confidence on
the government.
If a cut motion is passes the government must resign.
POLICY CUT:

This is the disapproval of the policy underlying the demand.

If the policy cut is passed the total amount of the demand is reduced to Rs. 1/- (One
Rupee).
ECONOMY CUT:
The economy cut is not against the policy but against the amount.
If the economy cut is passed the total amount of the demand is reduced by specified
amount.
TOKEN CUT:
The token cut is also called nominal cut.
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This is just to express the grievance of the members against a demand.

If the token cut is passed the amount of the demand is reduced by Rs. 100/- (hundred
only).

QUICK REVIEW:

POLICY CUT: The total amount is reduced to Rs.

1/ ECONOMY CUT: The total amount is reduced by
specified amount.
TOKEN CUT: The total amount is reduced by Rs.
100/-

Note: As we know the budget contains two parts Income and expenditure. The income
and expenditure are presented, discussed and passed separately in the form of 2 different
bills, Appropriation (expenditure) bill and finance (Income) bill. These two bills form 4th
and 5th steps in the enactment of the budget.

CONSIDERATION AND PASSING THE APPROPRIATION (EXPENDITURE)

BILL:

This is the 4th stage of the budget.

The appropriation bill meant for the getting the approval for the expenditure out of the
consolidated fund of India.
All the demands that are discussed and voted during the voting on demand for grants are
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put together in the form of a bill and is called the appropriation bill.
The appropriation bill contains

The grants voted by the Lok Sabha

The expenditure charged on the consolidated fund of India.

No changes can be proposed to the appropriation bill.

The appropriation bill is not discussed as the discussion is already completed during
voting on demand for grants.
The Appropriation is bill is voted.
Please read this point with more focus to get clarity: During the voting on demand for
grants all the demands are voted separately and not in the form of a bill. Hence all the
demands put together and is called the appropriation bill. This is presented and is voted in
Lok Sabha.
After the appropriation bill is passed in the Lok sabha, the bill is forwarded to the Rajya
Sabha.
The Rajya Sabha has no power to vote the appropriation bill.
The Rajya Sabha can discuss the appropriation bill and send recommendations if any
to the Lok sabha.
The Lok Sabha may or may not accept the recommendations.
The Rajya Sabha must return the appropriation bill to the Lok Sabha within 14 days.
The Appropriation bill is then forwarded to the President.
The President cannot send back the appropriation bill for reconsideration.
The President must give the assent.
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The appropriation bill becomes appropriation act.

CONSIDERATION AND PASSING THE FINANCE BILL:

This is the 5th and final stage in the enactment of the budget.
Tax proposals are mentioned in the Finance bill.
The Finance bill is subjected to all the conditions applicable to Appropriation bill.
The Finance bill must be enacted within 75 days.
The Finance bill is also introduced first in the Lok Sabha.
The changes are permitted in the Finance bill.
The Parliament can demand for the reduction or abolition of a tax.
The Parliament cannot demand for the increase of a tax.
After it is passed in Lok Sabha the finance bill is forwarded to the Rajya Sabha.
The Rajya Sabha must return the bill within 14 days.
The Finance Bill is forwarded to the president.
The President cannot send back the Finance bill for reconsideration.
With the assent of the President the Finance Bill becomes the Finance Act.
This gives the effect to the financial proposals of the government of India.

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VOTE ON ACCOUNT:
This is mentioned under Article 116 of the Indian Constitution
Vote on Account is an advance granted in respect to the estimated expenditure for a
part of the financial year, pending the completion of the voting of the demands for grants
and enactment of the appropriation bill.
As we know that the financial year in India begins on April 1 and ends on March 31.
The expenditure and tax collection of a particular financial year must take place during
this period only.
But, starting from the day of introduction of the budget in the Parliament (last working
day of February) by the time it becomes Act, it goes on till the end of the April.
Note: The Financial year begins on April 1.
The government needs money to carry on its activities after March 31.
Please Note: The previous year money if it is available also it cannot be used because of
the Rule of Lapse.

WHAT IS RULE OF LAPSE?

The money which is allotted for a particular financial year
should used only during that financial year only.

The Vote on account is passed by the Lok Sabha after the completion of general
discussion.
The vote on account is granted for 2 months.
The vote on account is equivalent to 1/6th of the total estimation.
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Note: There are various other grants made by the

parliament from time to time. This also may not be the part
of budget.

Vote of Credit
Supplementary grant
Additional grant
Excess grant
Exceptional grant
Token grant

VOTE OF CREDIT:

This is mentioned under Article 116 of the Indian Constitution

The vote of credit is like a blank cheque.
The vote of credit is granted for meeting the unforeseen demand.
This is related to the service of an indefinite character.

SUPPLEMENTARY GRANT:

This is mentioned under Article 115 of the Indian Constitution.

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This is granted when the amount authorized by the Parliament through the appropriation
act for a particular service for the current financial year is found to be insufficient for that
year.

ADDITIONAL GRANT:

This is mentioned under Article 115 of the Indian Constitution

This is granted for the new service during the current financial year.
This new service is not a part of the budget of that financial year.

EXCESS GRANT:

This is mentioned under Article 115 of the Indian Constitution.

The excess grant is made when the money has been spent on any service during a
financial year in excess of the amount granted for that service in the budget for that year.
The excess grant is voted by the Lok Sabha after the financial year.
The excess grant must be approved by the Public Accounts Committee.

EXCEPTIONAL GRANT:

This is mentioned under Article 116 of the Indian Constitution

The exceptional grant is not a part of the current financial year service.
The exceptional grant is for a special purpose.

TOKEN GRANT:
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The token grant is meant for transfer of funds from one head to the other.
This is called re-appropriation.
The token grant involves no additional expenditure.

VARIOUS TYPE OF FUNDS UNDER THE CONSTITUTION OF INDIA

The Constitution of India provides for the three kinds of funds.

They are

Consolidated Fund of India

Article 266

Public Accounts of India

Article 266

Contingency Fund of India

Article 267

CONSOLIDATED FUND OF INDIA:

No money out of the Consolidated Fund of India can be appropriated except in

accordance with a Parliamentary law.

The Consolidated fund of India is mentioned under Article 266 of the Indian
Constitution.

All receipts are credited to the Consolidated Fund of India.

All the payments are debited from the Consolidated Fund of India.
Note: All expenditure is drawn and Income is deposited to the Consolidated Fund of
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India.
What forms the Consolidated Fund?

All revenues received by the government of India.

All loans raised by the government of India by the issue of treasury bills, loans or
ways means of advances.

All money received by the government of India in repayment of loans.

CONTINGENCY FUND OF INDIA:

Note: Contingency means emergency.
The Contingency of India is mentioned under Article 267 of the Indian Constitution.
The amounts determined by the Parliament by law paid from time to time.
The Contingency fund of India is placed at the disposal of the President.
The President of India can make advances out of Contingency Fund of India to meet
unforeseen expenditure pending its authorization by the Parliament.

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1 Comment

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Nivedita Saxena

7 months ago

A million times thank you sir.

I've had some confusion with budget for very long time. I've read books but still couldn't get my doubts clarified. It hardly took
15min to read this entire page. But I've understood very clearly.
Y ou've presented in amazingly simple manner.
Once again thanks a LOT!
7

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