Union Budget 2026: Simple Guide To Key Budgetary Terms And Finance

Every year, the Union Budget decides where the country’s money will come from and where it will go, but the jargon often makes it hard to follow. This article simplifies the Union Budget by explaining key terms in an easy, relatable way, helping readers understand how the government earns, spends, borrows, and manages money in everyday life.

Interim Budget: It is a temporary money plan made when elections are near, so the new government can take big decisions later. For example, it allows the government to pay salaries and run schemes for a few months, like managing household expenses until a new earning member takes charge.

Vote on Account: It allows the government to spend money for a short period without presenting a full budget. For example, it’s like taking pocket money approval at home to pay basic bills until the full monthly budget is finalised.

Annual Financial Statement (AFS): It is a detailed list showing how much money the government expects to earn and spend in a year. For example, it’s like a family writing down its yearly income and expenses in a notebook before planning how to manage money.

Demands for Grants: They are requests made by different government departments asking parliament for money to run their work. For example, it’s like each family member asking for a fixed amount from the household budget for school fees, medical expenses, or daily needs.

The Finance Bill: It is the law that puts the Budget’s tax proposals into action. For example, if the Budget says income tax or GST will change, the Finance Bill makes those changes legally valid.

The Appropriation Bill: It allows the government to officially withdraw money from the public fund to spend it. For example, it’s like getting final permission to use money from a bank account after the family budget is approved.

Tax Revenue: It is the money the government collects from people and businesses through a variety of taxes. For example, when you pay income tax, GST on groceries, or tax on petrol, that money becomes the government’s tax revenue.

Non-Tax Revenue: It is the money the government earns without taxing people. For example, profits from government companies, interest from loans, or money given by the RBI all count as non-tax revenue.

Direct Taxes: These are taxes you pay directly to the government from your own income or profits. For example, when a salaried person pays income tax or a company pays tax on its profit, that is a direct tax.

Goods and Services Tax (GST): This is a tax added to almost everything you buy, from groceries to mobile phones. For example, when you buy a packet of biscuits or pay for a movie ticket, part of the price goes to the government as GST.

Corporation Tax or Corporate tax: This is a tax that companies pay on the profits they earn. For example, if a business makes RS 1 crore profit in a year, it must pay a part of that money to the government as corporation tax.

Customs Duty: It is a tax on goods brought into the country from abroad. For example, when a company imports cars or electronics, it pays customs duty to the government.

Excise Duty: It is a tax on goods made or produced within the country. For example, when a factory makes cigarettes or alcohol, it pays excise duty on them.

Dividends from PSUs or the RBI: These are profits they transfer to the government, helping fund public spending without raising taxes. For example, when RBI earns surplus from interest on bonds or forex operations, it pays a dividend to the union government, which can be used for welfare schemes or infrastructure.

Revenue Expenditure: This is the money the government spends on everyday needs. For example, paying salaries of teachers and police or giving subsidies is revenue expenditure.

Capital Expenditure: It is the money the government spends to build or buy long-term assets. For example, building highways, railways, or hospitals is capital expenditure.

Plan Expenditure: It is money spent by the government on development and welfare schemes.For example, spending on housing schemes, health missions, or education programs comes under plan expenditure.

 Non-Plan Expenditure: It is money spent on fixed expenses of the government such as salaries, pensions, and interest on loans which come under non-plan expenditure.

Subsidies (food, fertiliser, fuel): It is financial support given by the government to keep essential goods affordable for people.

Defence Expenditure: It is the money spent by the government on the armed forces, including soldiers’ salaries, weapons, equipment, training, and national security operations.

Fiscal Deficit: It is the difference between what the government earns and what it spends in a year. When spending is higher than income, the government borrows money to make up the gap.

Revenue Deficit: It happens when the government’s regular income is less than its day-to-day expenses, meaning it has to borrow money even to pay for salaries and subsidies.

Primary Deficit: It is when the government’s total spending is more than its income, excluding interest payments on past loans. For example, if the government borrows only to run schemes and pay salaries, and not to repay old loan interest, it is called a primary deficit.

Budget Deficit: It is when the government’s total expenditure is higher than its total income in a year. For example: If the government earns Rs 100 but spends Rs 110, the budget deficit is Rs 10.

Gross Domestic Product (GDP) ratio: It shows a country’s income or spending as a percentage of its total economic output (GDP). For example, If the fiscal deficit is 5% of GDP, it means the government’s extra spending equals 5% of the country’s total economy.

Borrowing: It is when the government takes loans to meet expenses or cover a deficit. For example, the government borrows money by issuing bonds to fund welfare schemes or infrastructure projects.

Market Borrowings: It is the money the government raises by borrowing from the market, mainly by selling bonds and treasury bills to banks, institutions, and the public. For example, The union government issues government bonds, and investors buy them, lending money to the government.

Public Debt: It is the total money the government owes after borrowing over the years, both from the market and from institutions. For example, loans taken by the government through bonds, treasury bills, and from agencies like RBI together form public debt.

Treasury Bills: These are short-term government securities issued to borrow money for a year or less. For example: The government sells a 91-day T-Bill to banks or investors and pays them back with interest when it matures.

Government Securities (G-Secs): These are long-term loans the government takes by selling bonds to raise money for projects and expenses. For example, the government sells a 10-year bond to investors and pays them interest every year until it matures.

External Borrowings: It is money the union government borrows from foreign countries or international organisations. For example, loans from the World Bank or Asian Development Bank to fund infrastructure projects in India are external borrowings.

Transfers and Federal Finance: It is the money the union government gives to states or local bodies to support their spending and development. For example, grants for schools, hospitals, or rural roads from the union government to state governments are part of transfers in federal finance.

Devolution to States: It is the money the union government gives to state governments to help fund development projects. For example, taxes shared with states for health, education, and rural development is part of devolution.

Finance Commission: It is a government body that decides how union government’s taxes and funds should be shared with states. For example, The 15th Finance Commission recommended what percentage of GST and other revenues each state should get from the union government. 

Centrally Sponsored Schemes (CSS): These are programs mostly funded by the union government but run by state governments. For example, in the PM-Kisan scheme, the union government gives money to farmers, while the states handle the payments.

Grants-in-Aid: It is money given by the union government to states or local bodies for specific purposes, without expecting repayment. For example, Funds given to a state to improve health services or build schools are grants-in-aid.

Welfare Schemes: These are government programs that provide support to improve the lives of citizens, especially the poor and marginalised. For example, food subsidies, pension schemes for senior citizens, and free education for children are welfare schemes.

Social Sector Expeniture: It is the money the government spends on health, education, and other services that improve quality of life. For example, building hospitals, funding schools, and running vaccination programs are social sector spending.

Capital Expenditure: It is money spent to create long-term assets that help the economy grow. For example, building factories, roads, or power plants adds to capital formation.

Infrastructure Spending : It is money the government invests in building and improving public facilities. For example, Roads, bridges, railways, airports, and electricity projects are part of infrastructure spending.

Disinvestment: It means the government sells its shares in public sector companies to raise money. For example, selling part of its stake in a company like ONGC or Air India to private investors is called disinvestment.

Asset Monetisation: It is earning money by using or renting government-owned assets instead of selling them. For example, leasing highways, airports, or railway stations to private companies to earn income.

Inflation Management: It is the government’s action to control the rise in prices of goods and services. For example, adjusting interest rates or regulating fuel prices to keep everyday items affordable is part of inflation management.

Growth Projections: It shows how much the economy is expected to grow in the coming year. For example, predicting that India’s GDP will grow by 6% next year is a growth projection.

Tax Policy & Compliance: These are the rules the government makes to collect taxes and ensure people and businesses pay them correctly. For example, setting income tax rates, GST rules, and checking if companies file returns on time is part of tax policy and compliance.

Tax Slabs: These are different income ranges that are taxed at different rates. For example, income up to Rs 5 lakh may be tax-free, Rs 5–10 lakh taxed at 10%, and above Rs 10 lakh taxed at 20%; these ranges are called tax slabs.

Tax Exemptions: Income or activities that the government does not tax. For example, Interest earned from a savings account up to a certain limit or certain donations to charity may be tax-exempt. 

Deductions: These are specific amounts you can subtract from your total income to reduce taxable income. For example: Investing in life insurance or paying tuition fees allows you to claim deductions and pay less income tax.

Surcharge: It is an additional tax levied on top of the existing income tax or corporate tax, specifically targeting high-income earners and entities. It is a ‘tax on tax’, calculated as a percentage of the tax payable rather than on the total income itself. 

Cess: It is a small additional tax collected for a specific purpose. For example, real estate developers pay a certain percentage of construction cost, which is used to provide benefits like health, housing, and insurance for construction workers.

Tax Buoyancy: It shows how fast tax revenue grows compared to the economy. For example, if the economy grows by 5 per cent but tax revenue grows by 7 per cent, the tax system is highly buoyant, meaning it collects money faster than the economy is growing.

Widening the Tax Base: This means making more people or businesses pay taxes to increase government revenue. For example, including small online sellers or new businesses under GST helps widen the tax base.

Medium-Term Planning: It is the government’s plan for spending, revenue, and policies over the next 3–5 years. For example, planning to build highways, hospitals, and schools over the next five years is medium-term planning.

Fiscal Responsibility: It is the government’s practice of managing money carefully, spending within its means, and avoiding too much borrowing. For example, keeping yearly expenses close to income and controlling debt shows fiscal responsibility.

The Budget Management (FRBM) Act: It is a law that makes the government control its borrowing and spending to keep finances healthy.  For example, It sets limits on fiscal deficit so the government doesn’t spend much more than it earns.

Medium-Term Fiscal Policy: It is the government’s plan to manage spending, revenue, and borrowing over the next 3–5 years to support steady economic growth. For example, planning gradual tax reforms and infrastructure projects over the next five years is part of medium-term fiscal policy.

The Medium-Term Expenditure Framework: It is a government plan that decides how much money can be spent on different sectors over the next 3–5 years. For example, setting yearly funds for health, education, and roads is part of the Medium-Term Expenditure Framework.