Concept & Components of Government Budget

1 Mark Questions

1. Define government budget. (Delhi 2014 c)

or What is government budget? (Delhi 2013, 2009; All India 2008) Ans. Government budget is a statement of expected receipts and expenditures of the government over the period of a financial year, i.e. 1st April to 31st March.

2. Give two examples of indirect taxes.(Compartment 2014)

Ans. Two examples of indirect taxes are:

1. Entertainment tax
2. Value added tax

3. What is a direct tax? (Compartment 2014)

or Define a direct tax. (All India 2012) Ans. Direct taxes are those taxes for which the incidence and impact of tax falls on the same person, i.e. actual burden of these taxes cannot be shifted, e.g. income tax, corporation tax, etc.

1. Give two examples of non-tax revenue receipts. (Compartment 2014) or

State any two sources of non-tax revenue receipts. (Delhi 2011 C; All India 2008) Ans. Two sources of non-tax revenue receipts are:

1. Fees
2. Grants/donations

5. Define tax (Delhi 2012; All India 2010)

Ans. Tax is a compulsory payment made by an individual, household or a firm to the government without reference to anything in return.

6. Give two examples of direct tax. (All India 2010)

Two examples of direct tax are:

1. Income tax (ii) Corporation tax

1. Define revenue receipts in a government budget. (All India 2010; Delhi 2009)

Ans. The receipts which neither create any corresponding liability for the government nor create any reduction in assets, are termed as revenue receipts, e.g. tax receipts of government.

1. What is revenue expenditure in government budget? (Delhi 2010c)

Ans. The expenditure of the government which neither cause any increase in the government assets nor cause any reduction in government liabilities, are termed as revenue expenditures, e.g. expenditure on old age pensions, salaries, etc.

9. Define capital expenditure. (Delhi 2010c, 2009 c)

Ans. The expenditure by the government which leads to an increase in government assets and reduction in government liabilities, is termed as capital expenditure, e.g. expenses on the construction of national highways, dams and repayment of loans, etc.

10. Why is repayment of loan a capital expenditure? (Delhi 2009)

Ans. Repayment of loan causes a decrease in the liabilities of the government. That is why, it is a capital expenditure.

11. Why are borrowings a capital receipt? (Delhi 2009)

Ans. Borrowings lead to increase in liabilities of the government, hence, it is a capital receipt.

1. Why the taxes received by government are not capital receipts?

(All India 2009)

Ans. Taxes received by government are not capital receipts as taxes do not create any liability for government, nor lead to decrease in government assets.

13. State any one objective of government budget. (Delhi 2008)

Ans. Re-distribution of income and wealth is an objective of government budget.

3 Mark Questions

1. Is the following a revenue receipt or a capital receipt in the context of government budget and why?
2. Tax receipts

1. Disinvestment (All India 2014)

Ans. (i) Tax receipts are revenue receipts for the government because neither they create a liability nor they lead to reduction in any assets.

1. Disinvestment refers to the withdrawal of existing investment, e.g. the government of India is undertaking disinvestment by selling its shares in Maruti Udyog Ltd. It is a capital receipt for the governments as it reduces the assets of the government.
2. Giving reason, state whether the following is a revenue expenditure or a capital expenditure in a government budget:
3. Expenditure on scholarships
4. Expenditure on building a bridge (Foreign 2014)