Meaning of Budget:

The term budget is derived from the word BOUGETTE which means a leather bag containing financial papers. Budget is a financial statement of anticipated revenue and expenditure of the govt. for the coming financial year. The components of budget are mainly two revenue account and capital account.

According to a W.E. Willoughby “A budget is at once a report , an estimate and a proposal , that instrument by which all the financial administration is corrected , compare and co ordinate “.

Components of budget:

Revenue Account:

1. Revenue receipt
2. Tax revenue
3. Non tax revenue
4. Revenue expenditure
5. Plan expenditure
6. Non plan expenditure

• Revenue receipts: It refers to revenue earn by the government from tax and non tax sources.
• Tax revenue: It consists of the prospects of taxes and other duties Levied by the government. A tax is a compulsory payment made by the people to the government without expecting any direct returns. Tax revenue comprises of direct taxes and indirect taxes.
• Non tax revenue: Revenue collected from sources other than tax sources is non tax revenue. It consists of interest receipts, profit of public sector undertakings income from Print and mint of currency, fees, fines and penalties and grants in aid from foreign countries and international organizations.
• Revenue expenditure: It is the expenditure incurred on the normal functioning of government departments and provisions of various services interest charges on debt incurred by the government, subsidies Etc. It is classified into plan revenue expenditure and non plan revenue expenditure.
• Plan revenue expenditure relates to the expenditure incurred on the implementation of economic plans the government provision assists the plans of local government Etc. This expenditure contributes to National income directly.
• Non plan expenditure relates to the expenditure incurred on defense services law and order, interest payment, subsidies, salaries pensions tax collections, administration Etc. This expenditure does not contribute to the national income directly but lubricates the wheels of development process.

Capital Account:

1. Capital receipt
2. Market debt
3. Internal , external debt
4. Other liabilities
5. Capital expenditure
6. Plan expenditure
7. Non plan expenditure

• Capital receipts are those receipts of the government which creates liability that is borrowings or reduce financial asset that is disinvestment such receipts are obtained by the government by rising loans from the market, Central Bank, foreign governments and international institutions. It also includes loans rise from public by issuing bonds , unit certificate etc. the other source of capital receipts are recoveries of loans, granted to local government, small savings public provident funds receipts obtained from this investment of public sector units.
• Capital expenditure : It refers to the expenditure incurred on the acquisition of assets such as land, building, machinery and equipment investment on shares loans and advances Etc. Capital expenditure is also categorized as plan capital expenditure and non plan capital expenditure.
• Plan capital expenditure relates to expenditure incurred for creating permanent revenue yielding asset. It include development expenditure incurred on economic and social services such as agriculture, industries, transport and communication irrigation, power extraction of mineral, science and technology, investment on shares, loans and advances, education, public health, housing welfare programs etc. this expenditure of the government aim at building some economic and social infrastructure they are necessary to accelerate base of economic growth of a country.
• Non plan capital expenditure relates to expenditure incurred on compensation, rehabilitation facilitated during natural calamities and it’s also includes repayment of loans.

also read: explain the types of budget deficit.