How Does Government Use The Tax Money In India?
- The day-to-day expenses of every nation are entirely reliant upon the taxpayers of the country.
- From national security like the salaries of army and navy professionals to the public health and infrastructure is funded using the money received from the taxes of the country’s citizens.
- Every amount paid in the form of tax becomes income for any government.
- They use them to purchase commodities and services and to pay their employees.
- When we consider the main areas of government expenses, it majorly shows spending on public health, defense, police, infrastructure, and judiciary.
- Additionally, it is interesting to note that more than 23% of the government income goes entirely for paying interests.
- It forms about one-quarter of their total revenue.
- If we speak generally, the temporary and permanent payments made by the government use the taxpayer’s money.
- The recurring or permanent payments are the salaries of government employees.
- On the other hand, non-recurring or temporary expenses are done occasionally for creating long-term assets for the country.
- The money in this section helps in constructing roads, railways, colleges, schools, and bridges, which are responsible for increasing the convenience of citizens.
- If done in the right manner, these assets could increase the value of any nation in the international markets.
- Non-recurring expenses are also known as CAPEX (Capital Expense).
- Every growing economy majorly focuses on CAPEX.
- For getting a better understanding of the money paid by the taxpayer, keep reading the following sections of the article.
Sources of Revenue for the Union Budget
- It is the prime responsibility of every incumbent government to announce an annual union budget in the parliament.
- Every year, the finance minister declares the expenses in the coming financial year.
- In this budget session, the finance minister also mentions the sources of government revenue (receipts).
- In the union budget session, every expense and the income of the government is declared by the finance minister.
- This process is similar to that of private companies.
- They declare their income and expenditure in the form of P&L accounts, whereas, the government calls this declaration session the union budget.
- The Government of India takes the opportunity of declaring the expected total revenue of the country in the union budget for the coming financial year.
- Capital receipts, Non-tax receipts, and tax receipts are the major categories of revenue receipts.
- If we sit to notice the source of the government income, we will know that the taxpayer’s money is not the only source of income of the country.
- The taxpayer’s money generates only 53.77% of government revenue.
- Capital Receipts are responsible for contributing 33.57% to the revenue of the country, and the non-tax revenue generates 12.66% of the total revenue share.
- People who believe that the citizen’s money is only responsible for paying the government are highly mistaken.
- In the form of capital receipts and non-tax revenue, the government receives almost 50% of its income.
- These types of revenue are explained in the following list.
Corporation tax, income tax, customs, and GST are included in the category of Tax Revenue.
Debt, disinvestments, and the amount collected from the recovery of loans are directly received in the form of income by the country’s government.
- Interests and dividends are another small contributors to the country’s revenue in the form of non-tax revenue.
- They are the second major contributor to the total revenue.
Break-up of Revenue
- The citizens of a country are responsible for paying taxes to the Government of India in the form of Wealth-tax, income tax, excise duties, service tax, customs, and GST.
- On the contrary, the taxes paid by private companies in the country are listed as the corporation tax.
- Any form of indirect taxation is never imposed directly on an individual’s income.
- It is the direct tax that is responsible for directly being deducted from the income of an individual.
- If we analyse the total amount received by the government in the form of income, we will get to know certain important facts as listed below.
- The Government of India receives about 21% of its income from the income tax collected from individuals.
- This money paid by the taxpayers is a type of direct tax that is directly collected from freelancers, professionals, HUFs, and individuals.
- This forms a small part of the government’s income.
- Goods and Services tax is responsible for increasing the cost of services and goods in the country.
- It is a type of indirect tax that the government collects for every service and goods falling in the permissible category.
- This form of indirect taxation is very important for the Government of India because a huge part of the government’s receipts comes from GST.
- Out of the total receipts generated by the government of India, GST is responsible for generating 22.7% of the income.
- Corporation Tax is a form of direct tax that is levied on businesses and companies operating in the country.
- The contribution of this tax on the total income of the government is slightly lesser than the Goods and Services tax.
- Corporation tax is responsible for 22.4% of the country’s income.
- Most of the capital expenses of the country are financed using debt receipts.
- Cash coming into the country in the form of debt is responsible for about 22.2% of the government’s total revenue.
- If you’re wondering what debt receipts are, they can be explained in simple terms.
- The Government of India raises funds by issuing long-term and short-term Dated Securities.
- These are counted under the categorisation of Debt Receipts.
- Additionally, PO savings and the borrowings received from PPF-like saving schemes are also included in this category.
- The total debt of India is around Rs. 7.96 lakh crore.
- The main components of the debt receipts are explained below.
Securities Received Against Small Savings
- Almost every citizen of the country does his best to save money through government schemes like-
- Fixed Deposits
- Post Office Savings
- Monthly Income Scheme (MIS)
- Senior Citizen Savings Scheme
- Recurring Deposits
- National Savings Certificate (NSC)
- Kisan Vikas Patra.
- The Government of India borrows funds from the money deposited by the citizens in these accounts.
- Almost 30% of the country’s debt receipt is generated from this section.
New Market loans
- Market loans are responsible for generating 68.4% of the total country’s debit receipt.
- With the maturity time of a year, these market loans are dated securities or T-bills.
- People refer to these loans as long-term dated securities.
Break-up of Expenses
The majority of the money collected from the taxpayer is distributed in the following main categories.
- As per the annual union budget, approximately 11.11% i.e. Rs. 3.4 crores are allotted for the country’s defense.
- Out of the total amount kept aside for defense, about 35% goes for capital expenditure, where the money is spent for the expansion of the military and modernisation of existing weapons.
- The remaining proportion of the amount is required for running the daily expenses of the forces.
- A major portion of the income taxpayer’s money goes for paying the interest on the debt of the government of India 23.31% from the fiscal budget of 2020-21 was assigned for paying interest on debts.
- The ex-government and ex-defense employees receive some monthly amount as pension after their retirement.
- About 6.42% of the government’s income goes for paying the pension amount.
Transfer to UTs and States
- For emergency management and development of the Union Territories and the states, the central government gives approximately 8% in the form of grants and transfers.
- Every earning individual of the country must pay taxes for the overall development of the country.
- The money received by the government is used for improving infrastructure, providing public health care services, and developing the rural areas in the country.
- If every individual and company religiously pay the annual taxes, it will help the government in creating profitable schemes and infrastructure for the country.
Q- How does the government use taxpayers' money?
- The government uses the taxpayers’ money to pay interest on their debt.
- This money is also used for paying the salary of government servants, transferring the amount to states and UTs.
- Improving the defense services of the country, and paying the pension of ex-government employees.
Q- Most of the taxpayers’ money is used for which purpose?
Ans- The highest proportion of taxpayers' money is used to pay interest on the debt of the country in the international market.
Q- Which type of tax is GST?
Ans- GST is an indirect type of taxation because the tax amount is not directly deducted from the salary or income of any individual or company.