Budget and Taxation

📘 AFCAT Economics · ECA02 ✈️ AFCAT Level : High Priority

Budget & Taxation for AFCAT: crisp definitions of expenditure types, deficit formula, and GST structure. Direct questions, no deep analysis.

📌 AFCAT Pattern: Revenue vs Capital expenditure • Fiscal Deficit formula • Direct vs Indirect tax • GST (“One Nation One Tax”) • CGST/SGST/IGST

Budget Concepts & Taxation

Revenue Expenditure: Day-to-day operations (salaries, interest payments, subsidies). Does NOT create assets.
Capital Expenditure: Creates assets or reduces liabilities (roads, railways, dams, defence equipment). Investment in nature.
Fiscal Deficit = Total Expenditure − Total Receipts (excluding borrowings). Government’s total borrowing requirement. FY26 target = 4.4% of GDP.
Revenue Deficit = Revenue Expenditure − Revenue Receipts.
Direct Tax: Cannot be shifted. Income Tax, Corporate Tax. Collected by CBDT.
Indirect Tax: Shifted to consumers in price. GST, Customs. Collected by CBIC.
GST: Implemented 1 July 2017. “One Nation, One Tax.” CGST (Centre, intra-state) + SGST (State, intra-state). IGST (Centre, inter-state). Rate slabs: 0%, 5%, 12%, 18%, 28%.
Union Budget FY26: Defence = Rs 6.81 lakh crore (highest ever); Total = Rs 50.65 lakh crore; Capital Expenditure = Rs 11.21 lakh crore.

📝 AFCAT PYQBudget & Taxation — AFCAT Pattern

Q1. Salaries of government employees are classified as: (AFCAT I 2024)

(a) Capital expenditure (b) Revenue expenditure (c) Transfer expenditure (d) Development expenditure

Answer: (b) Revenue expenditure
Revenue expenditure = does NOT create assets; recurring. Salaries, subsidies, interest payments = revenue. Roads, dams, defence hardware = capital expenditure (creates assets or reduces liabilities). AFCAT often tests this distinction.

Q2. GST is an example of which type of tax? (AFCAT II 2023)

(a) Direct tax (b) Progressive tax (c) Indirect tax (d) Wealth tax

Answer: (c) Indirect tax
GST = Goods and Services Tax; indirect tax (burden shifted to final consumer in price). Income tax = direct tax (borne by the person it falls on). GST replaced 17+ central and state indirect taxes. “One Nation, One Tax.” Implemented 1 July 2017.

📝 Rapid Revision — ECA02

📋 Budget

Revenue Exp = salaries, interest (NO assets)
Capital Exp = roads, dams (CREATES assets)
Fiscal Deficit = Total Exp − Receipts (excl borrowing)
FY26 FD target: 4.4% of GDP
FY26 Defence: Rs 6.81 lakh crore (highest ever)

📈 GST

1 July 2017; “One Nation One Tax”
Intra-state: CGST + SGST
Inter-state: IGST only
GST Council: Finance Minister chairs
Indirect tax (shifted to consumer)

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