Final Policy

7/27/2019 Final Policy

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MEANING OF FISCAL POLICY

The Word Fisc means state treasury so FiscalPolicy refers to policy concerning the use of statetreasury or the Govt. Finances to achieve the

macro economic goals DEFINITION : Fiscal Policy is defined as the govt.

Programme of taxation, expenditure, & otherfinancial operation to achieve national goals

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OBJECTIVES

FISCAL POLICY HAS TWO MAJOR OBJECTIVES

General Objectives - Aimed at achieving

macroeconomic goals

Specific Objectives Related to any typical

problems of economy

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INSTRUMENTS OF FISCAL POLICY

Budgetary Surplus & Deficit

Govt. Expenditure

Taxation Direct & Indirect

Public Debt

Deficit Financing

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HOW DOES FISCAL POLICY AFFECT THE

ECONOMY?

Aggregate demand which is the total demand for goodsand services in the economy depends on three mainvariables :

Consumption

Private investment &

Government Spending

When the Govt. Increases its expenditure then it spurs

the aggregate demand in the economy. A higheraggregate demand in turn will stimulate output, growth& employment. Whereas if the govt. Lowers its spendingthen it decreases the aggregate demand & hence slow

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TERMS RELATED TO FISCAL POLICY

FISCAL DEFICIT

It is an economic phenomenon where the govt.s

expenditure surpasses the revenue generated

It is the difference between the govts Total

receipts excluding the borrowing & Totalexpenditure i.e. Total govt expenditure

Revenue receipt + Non - Debt capital receipt

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GOVERNMENT RECEIPT

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Total GovernmentReceipt

Revenue Receipt

TaxRevenue

Non TaxRevenue

RecoveryOf Loans

Capital Receipt

Public sectorDisinvestment


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CAPITAL RECEIPT

A capital receipt is a receipt which is derived

from sale or purchase of capital assets like

plant & machinery, furniture ,investment(long-term) etc . which shall not be occurring

all the time

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REVENUE RECEIPT

It consists of tax collected by the govt. & other

receipts consisting of interest & dividend on

investment made by govt. & other receipts forservices referred by govt.

Revenue Receipt includes:

Tax Revenue Receipt

Non tax revenue receipt10


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DIFFERENCE BETWEEN CAPITAL

RECEIPT & REVNUE RECEIPT

The main difference between CR & RR is that

revenue receipt are recurring in nature, which

the government can expect to receive year

after year whereas capital receipt are a kind of

one time income

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PLANNED EXPENDITURE

It refers to the expenditure incurred by the

government on programmes/projects which

are recommended by the planning

commission

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NON PLANNED EXPENDITURE

It is a generic term used to cover all

expenditure of government not included in

the plan.

For example Interest payment, pensionery

charges, expenditure on external affairs,

currency & mint etc.

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REVENUE EXPENDITURE (REVEX)

Revenue expenditure is a expenditure

concerned with costs of doing business on a

day to day business

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CAPITAL EXPENDITURE

(CAPEX)

Capital expenditure are expenditures creating

future benefits. A CAPEX is incurred when a

business spends money either to buy fixedassets or to add to the value of an existing

fixed asset with a useful life extending beyond

the taxable income

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MEASURES OF DEFICIT

Revenue Deficit = Expenditure Receipt

Fiscal Deficit = (Total Expenditure) (Revenue

Receipt + Non Debt Capital Receipts)

Primary Deficit = Fiscal Deficit Interest Payment

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TAXATION

It is the act of levying taxes

A tax is a compulsory charge on payment

imposed by Govt. On Individuals or Corporation

The most important source of Revenue of the

Govt.

The tax may be imposed on the Income & wealth

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OBJECTIVES OF TAXES

Raising Revenue

Encouraging Domestic Industry

Reducing Income Inequalities

Promoting Economic Growth

Development Of Backward region

Ensuring price stability 22


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CLASSIFICATION OF TAXES

On the basis of form, nature & method the mostcommon & traditional classification is to classify

tax into

Direct tax

Indirect tax

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DIRECT TAX

Direct tax is that tax whose burden is borne bythe same person on whom it is levied . It is based

on the Income & property of a person

Example Income tax , Corporation tax ,

tax on companys profit , Property tax ,

Wealth tax etc

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INDIRECT TAX

Indirect tax is that tax which is initially paid byone individual but the burden of which is passed

over to some other individual who ultimately

bears it

Example- excise duty , sales tax,

entertainment tax , custom duty etc.

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ON THE BASIS OF DEGREE OF

PROGRESSION TAXES ARE

CLASSIFIED INTO :

Progressive tax

Regressive tax

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PROGRESSIVE TAX

When the rate of taxation increases as thepayers income increases , it is called a

progressive tax

In this system the rate of tax goes on increasing

with every increase in income

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REGRESSIVE TAX

A Regressive tax is one in which the rate of

taxation decreases as the tax payers income

increases. Lower income is taxed at a higher ratewhereas higher income is taxed at a lower rate

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SURCHARGE

It is basically an additional sum(tax) added to

the usual amount or cost(tax)

CESS

It is an alternative term for tax

For example Road cess, Oil cess, Education

cess, water cess

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DEDUCTION FROM TAXABLE INCOME

Under section 80C

Under section 80D (Medical Insurance premium)

Under section 88 of Income Tax Act (1961)rebate on certain investment

Interest on Housing loan

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CONCLUSION

We can say that the instrument of Taxation is of greatsignificance on :

Increasing the level of economic activity

Reducing income inequalities Promoting economic growth

Social welfare objectives (i.e.. tax payment helpsreduce the gap between the have & have not as it

helps in mobilizing the surplus income from thehaves & reinvesting them for public welfare , it helpsthese surplus funds to reach the haves not)

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REFERENCES :

D N DWIVEDI : Managerial Economics

http://finance.indiamart.com/taxation/income_tax/rate

s

http://en.wikiprdia.org/wiki/income_tax.india

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Final Policy

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