Highlights

  • Fiscal defict: Difference between govt revenue & expenditure, indicating how much it will need to borrow
  • Direct tax: A tax levied on income or profits of the person who pays it
  • Indirect tax: A tax levied on good & services

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Budget 2023: Fiscal deficit, direct & indirect tax; Key terms explained

With Budget 2023 round the corner, here are some key terms explained. 

Budget 2023: Here are some key budget terms explained


What is fiscal deficit?
The govt has various sources of income – called as govt revenue. For example, taxes, profits from companies that are owned by the govt etc. The govt spending a lot as well, for example on roads, infrastructure, salaries of govt employees, interest costs, administrative costs etc. Most of the time the govt ends up spending more than its earning.
So, this difference between what the govt spends and what it earns, when it spends more than it earns, is called as the FISCAL DEFICIT.

What is a direct tax?
A direct tax is a tax that you pay on your income or earnings. For example, the salary that you earn, you pay income tax on that. If you have a house on rent, the rental income is taxed. If you sell a house, the income you get for that will also be taxed. Essentially, it is that portion of your income that goes directly from you to the govt in the form of tax. Direct taxes are structured in such a way, that the more you earn, the higher the amount of tax you pay is.

What is an indirect tax?
Earlier, we had several kinds of indirect taxes, which have now all been merged into the GST or the goods and services tax. Whenever you go and buy anything or pay for any service, whether its buying shoes or clothes or going for a movie or to a restaurant or stay in a hotel. You are paying a small part of this GST or indirect tax. Why is it indirect? Because it goes from you to the seller, that’s whoever you’re buying that particular good or service from…and the seller then passes it on to the govt. So its not going directly from you to the govt like in the case of a direct tax, but from you to the seller to the govt. The tax here is built into the price, its included in what you have to pay. Any tax that you pay on your expenses is known as indirect taxes.

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