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

Capital Expenditure is one which either creates any assets or reduces any liabilities.

Revenue Deficit: When revenue receipts are less than the revenue expenditures in a government budget, this shortfall is termed as Revenue Deficit.

Revenue Deficit = Revenue Expenditure - Revenue Receipts

(a) Fiscal deficit= Revenue deficit + (Capital expenditure – Non-debt creating capital receipts)

₹12,000 crores= ₹9,000 + Capital expenditure- ₹10,000)

Capital expenditure= ₹12,000 crores – ₹9,000 crores + 10,000 crores = ₹13,000 crores

(b) Total expenditure = Revenue expenditure + Capital expenditure Revenue expenditure = Revenue defici + Revenue receipt

= ₹9,000 crores + ₹6,000 crores

= ₹15,000 crores

Total expenditure = Revenue expenditure + Capital expenditure

=₹15,000 crores + ₹13,000 crores

= ₹28,000 crores

(c) Primary deficit = Fiscal deficit – Interest payments

₹5,000 crores = ₹12,000 crores – Interest Payments

Interest Payments = ₹12,000 crores – ₹5,000 crores

= ₹7,000 crores

Revenue deficit = Revenue expenditure – Revenue receipt

Revenue deficit = ₹70,000 crores – ₹50,000 crores = ₹20,000 crores

Interest payment = 25% of revenue deficit = ₹ 20,000 crores x 25/100 = ₹5,000 crores

1. Fiscal deficit = Borrowings = ₹ 15,000 crores

2. Primary deficit = Fiscal deficit – Interest payment

Primary deficit = ₹15,000 crores – 5,000 crores

= 10,000 crores

Balance of Trade refers to export of goods less and 'import of goods' during a given year.

When the tax is imposed according to the income of people, it is called Progressive tax. A progressive tax is a tax system in which the rate of tax increases as the income increases. Higher the income higher will be the tax and vice versa.

According to Arther Smithies, “Fiscal policy is a policy under which the Government uses its expenditure and revenue programmes to produce desirable effects and to avoid undesirable effects on the national income, output and employment”.

(i) Commercial Revenue; and

(ii) Earning from PSU

Fiscal policy is the policy of the Government in respect of public revenue, public expenditure and public borrowings. 

The major instruments of fiscal policy are:

(a) Public Expenditure 

(b) Public Revenue 

(c) Public Debt and 

(d) Deficit Financing

(a) Public Expenditure: Public expenditure is nothing the expenses of Government incurred to promote economic and social welfare. It plays a vital role in developing countries like India. It has several effects on income, output and employment. Therefore, it is regarded as a very essential instrument in the determination of economic development of a country. In developing countries, the increased public expenditure is always desirable.

According to Wagner’s Law, there is a tendency of increasing public expenditure in respect of the following activities:

• To undertake material production. 
• Provision of social services like public health, literacy programmes etc. 
• Maintenance of internal and external security law and order.

(b) Public Revenue: Public revenue is the income of the Government from various sources , both tax and non-tax sources of revenue. In order to bring economic stability a suitable taxation policy is always desired.

The various sources of tax revenue are income tax, corporate tax, customs duties, wealth tax, service tax, excise duties etc. Similarly, the non-tax revenue sources are interest on loans, income from public enterprises, fees, fines, penalties, profits of RBI etc. The major uses of tax system as an instrument of fiscal policy are as follows:

• Helps in mobilization of revenue and checking unwanted expenditure. 
• Brings favourable changes in redistribution of income and wealth. 
• Helpful to control inflation and deflation.

(c) Public Debt: The loan, borrowings made by the Government from public, organizations, institutions is known as public debt. When the expenditure of the Government is more than its revenue, Government will go for public borrowings.

Classification of Public Debt: The public debt can be divided as follows:

(i) Internal debt: It is debt borrowed by the Government from the sources available within the country. It includes internal borrowings; market loans, etc. All treasury bills issued by RBI, State govt.’s, commercial banks, etc. It is also known as loan taken on negotiable securities.

(ii) External debt: It refers to all those borrowings of Government from sources available outside the country. It include loans taken by Government against non-negotiable instruments, non-interest bearing securities which are issued by international institutions like IMF, World Bank, IBRD, ADB, IDA, etc. Loans taken from IMF trust fund is also a part of external debt.

Public Debt as a burden: When the Government borrows more money, the public debt increases and burden of payment of interest falls on the Government. Then the Government has to impose more taxes on the people. When more tax is levied on people, the disposable personal income of consumer’s falls and this will lead to reduction in consumption, savings and also national income at the end. As a result, the growth rate of an economy will be affected. So, public debt is regarded as a burden on the Government and people.

In fact, the internal debt does not create any serious problem in country as the citizens of the country owe the debt to themselves. But external debt is a serious problem. In case of external debt, we borrow from other countries. This will transfer our purchasing power to other countries through payment of interests and reduce the money value of debtor country. So it advisable to reduce market debt:

The following are few suggestions to reduce market loans in India:

• The RBI’s accounts should be integrated with the Government accounts. 
• The gold reserves should be auctioned and used to meet Public expenditure. 
• Proper utilisation of resources which are generated through disinvestment. 
• Utilisation of resources generated from the sale of vast real estate.

(d) Deficit Financing: Deficit financing is one of the instruments of fiscal policy of Government for raising the level of output and employment. It refers to higher expenditure over receipts. It is used to finance economic planning. The major methods adopted by the Government to raise funds for deficit financing are Post Office savings, Provident fund, Public borrowings and printing of new currencies etc.

The deficit financing as an instrument of Fiscal policy leads to an increase in aggregate demand, aggregate investment, production, employment and income. A moderate deficit financing is always desirable in a developing country like India as it contributes to growth of an economy.

Balance of Trade refers to export of goods less and 'import of goods' during a given year.

When the anticipated income or revenue is less than its expenditure, it is known as deficit budget (Total Revenue is less than Total Expenditure). As in most of the State Government budgets, we find that its expenditure is more than its income.

The sources of non tax revenue are Profits of public sector industries, grants in aid from foreign countries, Profits of RBI.

(c) Dividends

Tax Revenue:- 

1. It is the main source of revenue of the government 

2. It is the revenue that arises on account of taxes levied by the government. 

3. Taxes of two types i.e., Direct and Indirect. 

4. Direct taxes are those taxes levied immediately on the property and income of persons. 

Examples: Income Tax, Corporate Tax, Wealth Tax etc., Incidence and impact falls on same person. 

5. Indirect taxes are those taxes levied on the production and sale of the goods. 

Examples: Sales Tax, Excise Duty etc. Tax paid by one person but the burden is taken by another person

Administrative Revenue:

1. It is the revenue that arises on account of the administrative function of the Government. 

2. It includes

a. Fees 

b. License fees 

c. Fines and penalties 

d. Forfeitures of surety by courts 

e. Escheat – means claim of the government on the property of a person who dies without having any legal heirs.

When at the full employment level of income AD exceeds AS, the difference is called Excess Demand.

i) Revenue Expenditure:- 

It is the expenditure incurred for the normal running of government departments and provision of various services like interest charges on debt, subsidies etc., 

ii) Capital Expenditure:-

It consists mainly of expenditure on acquisition of assets like land, building, machinery, equipment etc., and loans and advances granted by the Central Government to States & Union Territories.

These below are the three ways of Public Expenditure---- 

a. Revenue Expenditure and Capital Expenditure

b. Plan Expenditure and Non-Plan Expenditure

c. Development and Non-developmental Expenditure.

1. Their base is arbitary.
2. They have an unfavourable effect on capital accumulation.

(i) Excise tax

(ii) VAT (Value Added Tax)

The tax imposed according to the quantity or weight of items is called specific tax.

He believed that the level of Public expenditure and taxes should be minimum.

The expenditure through which there is an increase of National Income, directly or indirectly.

Expenditure done by central state and local governments is called public expenditure.

a) Balanced Budget:- It is one where the estimated revenue EQUALS the estimated expenditure. 

b) Surplus Budget:- It is one where the estimated revenue is GREATER THAN the estimated expenditures. 

c) Deficit Budget:- It is one where the estimated revenue is LESS THAN the estimated expenditure.

Situation where one gets freedom from tax liability without even paying the amount.

The origin of the word ‘Budget’ is traceable to the French word “Bougette”, which means a small leather bag. In 1733, in England, the word ‘budget’ was used to denote ‘a magic box’. Budget is a statement of the estimates of the Government Receipts and Government Expenditure during the period of financial year. The contents of budget are kept secret till it is not presented before the parliament of a country. Statements are kept in a leather bag which is opened in front of parliament. Therefore, budget has been compared with a magic box which is opened in front of the parliament.

When Government Receipts are more than the Government Expenditure in the presented budget, the budget is said to be a Surplus budget. In other words, a surplus budget implies a situation wherein the Government Revenue is in excess of Government Expenditure.

Symbolically : Surplus budget = Estimated government receipts > Estimated government expenditure.

Primary deficit is the difference between fiscal deficit and interest payment. It is estimated as under :
Primary deficit = Fiscal deficit – Interest Payment
PD = FD – IP
(Here, PD = Primary deficit, FD = Fiscal deficit, IP = Interest payment)
In, other words, primary deficit indicates government borrowings on account of current year expenditure and current year receipts of the government.

(a) Direct Taxes: 

i) Income Tax, 

ii) Interest Tax,

 iii) Wealth Tax 

(b) Indirect Taxes: 

i) Customs duties, 

ii) Excise duties, 

iii) Sales Tax

It means converting old loans into new loans.

Direct Progressive tax rate policy.

The tax rate should be low.

Deficit financing is one of the instruments of fiscal policy of Government for raising the level of output and employment.

(a) Deficit budget and Surplus budget.
When the proposed expenditure is greater than the expected revenue, the budget is said to be deficient. On the other hand, when the proposed expenditure is less than the expected revenue, the budget is said to be a surplus one.

(b) I do agree with the opinion of Keynes. Because in a developing economy govt, will have to make so many developmental activities for the welfare of the society. In such a situation, a deficit budget is possible and it will become unavoidable.

Both Disposable income and consumption decrease due to the levying of tax.

It is a statement of expected Receipts and Expenditure of the government over the period of a financial year, from April 1 to March 31st.

(c) Arun Jaitley

General budget is also called traditional budget. The main objective of this type of budget is to establish the financial control of legislature on executive. In other words, to control government expenses rather than inducing fast development. This budget includes expenditure done on wages and salaries, instruments, machines, etc.

(i) Consumption demand
(ii) Investment demand.

Fiscal deficit = Total expenditure (Revenue expenditure + Captal expenditure) – Total receipts other than borrowings (Revenue receipts + capital receipts other than borrowings).

The pioneer of zero based budget is Teter A. Pyer” of America.

The tax imposed in the ratio of Income is called propotionate tax.

Correct answer is (a) Budget

2017-18 budget also included the Rail Budget for the first time.

1. Tax revenues and
2. Non-tax revenues.

(c) Parliament