As Finance Minister Nirmala Sitharaman prepares to present the Union Budget 2026 on February 1st, it's essential to understand the key financial terms that shape discussions about the economy and government policy. This guide offers a concise overview of these terms, helping citizens, investors, and businesses interpret the budget's impact.

The Union Budget/Annual Financial Statement

The Union Budget, officially known as the Annual Financial Statement, is the government's yearly financial plan. Tabled in Parliament, it's a blueprint of the government's expected expenditure, proposed taxes, and other financial transactions that influence the economy and the lives of citizens. It outlines how the government intends to earn and spend money in the upcoming financial year. The budget reflects the government's economic priorities, fiscal strategy, and reform agenda.

Key Receipts: Revenue and Capital

The government's income is categorized into revenue and capital receipts. Revenue receipts are earnings that the government receives regularly, without increasing liabilities or reducing assets. These include tax revenues (like income tax, corporate tax, GST, and customs duties) and non-tax revenues (such as fees, fines, and dividends from government companies). Capital receipts, on the other hand, either create liabilities or reduce assets. These include loans raised by the government, borrowings through Treasury Bills, loans from foreign entities, and recoveries of loans from states and union territories.

Expenditure: Revenue and Capital

Government spending is also divided into revenue and capital expenditure. Revenue expenditure covers day-to-day spending that doesn't create long-term assets. This includes salaries, pensions, subsidies, and interest payments on borrowings. Capital expenditure, however, is spending that creates or upgrades assets like infrastructure, machinery, and equipment. It also includes investments in shares and loans to state governments, government companies, and other corporations.

Deficits: Fiscal, Revenue, and Primary

Understanding different types of deficits is crucial. A fiscal deficit arises when the government's total expenditure exceeds its total revenue, excluding borrowings. The Union Budget 2026 is expected to balance fiscal discipline and growth, targeting a fiscal deficit of around 4.3% of GDP. The revenue deficit is the difference between revenue expenditure and revenue receipts, indicating whether the government's regular income covers its regular expenses. The primary deficit is the fiscal deficit minus interest payments, showing how much of the government's borrowings are used for expenses other than interest.

Taxation: Direct and Indirect

Taxes are a major source of government revenue, categorized as direct and indirect. Direct taxes, like income tax and corporate tax, are borne by the entity on which they are imposed. Indirect taxes, such as excise duty and customs duty, are levied on goods and services and are typically paid by consumers. The upcoming budget may see efforts to simplify tax laws and customs duties.

Other Important Terms

• GDP (Gross Domestic Product): The total market value of all finished goods and services produced within a country over a specific period.
• Fiscal Policy: Government actions to influence the economy through taxation and spending decisions.
• Monetary Policy: Actions taken by the central bank (RBI) to control the money supply and interest rates.
• Disinvestment: The sale of shares of public sector undertakings by the government.
• Inflation: The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.

By understanding these key financial terms, individuals can better interpret the government's economic policies and make informed decisions about their own finances. The Union Budget 2026 is expected to focus on economic growth, infrastructure development, and digital expansion, signaling the government's priorities for the coming financial year.