What Is The Difference Between Interim Budget And Full Budget?

Each year, we wait for the finance minister to present the Union annual budget, which determines how our income, expenses and taxes will be affected. Not just that, it also gives the general public an idea about what the expected sources of revenue for the government are and how the expenses are chalked out for the year. Most of us know what a full budget or annual budget. However, sometimes, the government also presents an interim budget. And, everyone needs to know the difference between the two.

What Is a Full Budget?

On the 28th of February each year, the Finance Minister presents the much-awaited budget speech, which discusses the financial plan for the coming year. After debating the points in the proposed budget, members of the Parliament vote for or against the different suggestions made for the budget. Then, after everyone has reached a consensus, a Financial Bill is passed. This process ends on the 31st of March when the Finance Minister presents the full budget or the annual budget.

So what is the full budget exactly? This budget is divided into two sections. The first one elaborates on the income and expenses of the ruling government in the past year. The second part presents options to increase the income of the government through taxes and prices of various goods and commodities. This is the part that affects the common man the most, giving them new taxation policies and expenses, if any.

However, the process is different when we are in an election year because the new government is yet to be set up. This is when an interim budget is presented.

What is the Interim Budget?

What is the interim budget and why doesn’t the government just present a full budget even in an election year?

Usually, time is the primary governing factor for choosing to present an interim budget instead of a full budget. In addition to that, there is no guarantee on which party will come into power following the elections. It is the prerogative of the ruling party to present the annual budget. Additionally, during this period major changes in the taxation policies and financial schemes cannot be announced. Therefore, an interim budget is presented before the elections.

The primary difference between the interim budget and full budget lies in the contents. In the previous section which defines what is full budget, we saw that there are two sections in the full budget. Unlike that, the interim budget only lists the expected expenses in the coming months until the new government takes over and gives a detailed account of the income and expenses of the ruling government in the previous fiscal year.

After the interim budget has been presented, a Vote-on-Account is passed. This gives the government permission to meet the expenses listed in the interim budget. Although while defining what is interim budget, most people refer to it as a Vote-on-Account or VOA, there is a small difference between the two.

The interim budget includes both the income and expenses of the government in the past year and the upcoming months. A VOA grants permission to use funds for these expenses. This VOA is usually valid for 2 months but can be extended depending upon the elections and the outcome.

Primary Differences Between Full Budget and Interim Budget

Here is a summary of the difference between full and interim budget:

• When it is presented: The interim budget is presented a few months before the general elections by the Central Government. The full budget or the Union budget is presented every year at the end of the fiscal year on 31st March.
• Voting on the budget: Since the interim budget is temporary, a vote-on-account is passed to grant permission to the ruling government for the expenses mentioned in the budget. This vote was passed without any discussions in the Lok Sabha. Before presenting the Union Budget, a budget speech is made by the Finance Minister. After elaborate debate and discussion, a Finance Bill is passed first. Following this, the Union Budget is passed.
• Contents of the budget: The interim budget mentions the income and expenditure of the previous year for the current government. It also lists the expenses for the coming months until the next government can take charge. The Union budget lists the expenses and income in the previous year for the ruling government and also provides a detailed plan on how the government will raise funds and take different measures to use these funds for the development of the country. The main difference between full and interim budget is that the latter does not include any income sources for the government like taxes and does not announce any Government schemes.
• Validity of the budget: The interim budget is valid for a period between 2 to 6 months of the fiscal year. After the new government is elected, they prepare the annual budget in this time frame. The full budget is valid for the whole fiscal year.

While the interim budget does not account for any income of the government or how the schemes and policies can affect the people of the country, it is just as important. It helps keep the expenses of the ruling government in check. Since it is an election year, this ensures that the ruling government does not use funds for any large campaigns or election activities that may affect the outcome. Therefore, keeping track of the interim budget is also very essential. It also helps you understand if the funds were managed effectively by the government in the past year. This is an important part of the elections as people can decide if the previous government was effective in carrying out developmental activities.

Once you know what is interim budget and the full budget, it helps to understand other elements of the budget like common economic terms, the details of the current Union budget and also the importance of the Economic Survey. This gives you clarity on how your funds and investments can be affected. Therefore, you are in a better position to take important financial decisions.

Also Read:

1) Income Tax Return: All you need to know about ITR
2) How to Start Your Own Income Tax Business?
3) How to prepare GSTR-4 annual return for composition taxpayers using offline tools?
4) What Are The Tax Deductions for Joint Property Owners?

Stay updated with new business ideas & business tips with OkCredit blogs in English, Hindi, Malayalam, Marathi & more!
Download OkCredit now & get rid of your bookkeeping hassles.
OkCredit is 100% Made in India.

FAQs

Q. Is the interim budget mandatory?

Ans. Constitutionally, an interim budget is not mandatory. The ruling government can present a full budget. However, the new government may not be completely in the agreement with what is presented in the annual budget by the previous government. Additionally, it is not practical to hold the debate and pass the financial bill while the country is still in the election period.

Q. When is an annual budget presented?

Ans. The annual budget is presented at the end of the fiscal year each year. After the budget speech on the 28th of February, the final budget is presented on the 31st of March each year after the financial bill has been passed.

Q. Why is an interim budget needed?

Ans. You may wonder what is the interim budget's purpose if it does not affect the people of the country? The interim budget serves two purposes, it gives an idea of the performance of the ruling government in the previous year. More importantly, it keeps a check on the expenses of the government in the following months until elections. This prevents them from mismanaging funds and running expensive campaigns that may swing the results of the elections.

Q. How long is a VOA valid for?

Ans. Normally the VOA is valid for 2 months. However, in situations when there are issues with the election outcome, etc., this period of validity may be extended.

Q. What happens to the annual budget during an election year?

Ans. The annual budget is presented after the new party has come into power. The gap between the interim budget and the final annual budget is six months.