Chapter Overview

Public finance (लोक वित्त) is about how the government raises money (taxes, borrowing), spends it (salaries, subsidies, capital assets, transfers to states) and manages the gap between the two (deficits and debt). Every year the Union Budget brings fresh numbers, and every few years a big reform arrives: the FRBM Act (2003), GST (2017), GST 2.0 (2025), the Income-tax Act, 2025 and a new debt anchor from 2026-27. That makes this chapter both a dependable Prelims scorer and a standard Mains GS-III theme.

What this chapter does not repeat

Budget procedure in Parliament (Arts 112–117, cut motions, vote on account): Budget in Parliament.
Finance Commission (Art 280; 15th and 16th FCs, 41% share): Finance Commission.
Tax powers of the Centre and states, Arts 268–293, GST Council voting: Centre-State Financial Relations.

This chapter covers the economics: classification, deficits, fiscal rules, taxes and GST.

What You’ll Learn

By the end of this chapter, you will be able to:

Classify any receipt or expenditure as revenue or capital, and explain why grants to states are revenue expenditure
Quote the headline numbers of the Union Budget 2026-27 (BE) and read “where the rupee comes from and goes to”
Calculate revenue, fiscal, primary and effective revenue deficits from a table
Trace the FRBM Act from 2003 through the 2018 amendment to the 50 ± 1% debt anchor for 2030-31
Distinguish direct and indirect taxes, impact and incidence, buoyancy and elasticity, cess and surcharge
State the current income tax regime and the Income-tax Act, 2025 (in force 1 April 2026)
Explain GST’s structure, what is outside it, and the GST 2.0 slabs (5, 18, 40%) from 22 September 2025
Write Mains answers on fiscal consolidation, tax reform and GST federalism with a Chhattisgarh angle

Prerequisites

Basic Concepts and National Income — GDP is the yardstick for every “% of GDP” figure
Budget in Parliament and Parliamentary Devices — the constitutional procedure behind the budget

Learning Path

Follow the topics in this order:

graph TD
    A["1. Union Budget
revenue vs capital,
documents, 2026-27 numbers"] --> B["2. Fiscal Deficit and FRBM
four deficits, FRBM 2003,
2018 amendment, debt anchor"]
    B --> C["3. Taxation
direct vs indirect, cess vs surcharge,
Income-tax Act 2025"]
    C --> D["4. GST and GST 2.0
101st Amendment, IGST,
5-18-40 slabs, compensation"]
    D --> E["5. Quick Revision
One-page sheet"]
    E --> F["Next chapter:
External Sector"]

Topics in This Chapter

#	Topic	What it covers
1	Union Budget: Structure, Classification and Budget 2026-27	Art 112, revenue and capital account, budget documents, outcome and gender budgeting, Budget 2026-27 numbers, rupee comes from / goes to
2	Fiscal Deficit and the FRBM Act	RD, ERD, FD, PD with a worked example; financing; crowding out; FRBM 2003, N.K. Singh Committee, 2018 amendment, debt anchor; Chhattisgarh’s FRBM Act
3	Taxation: Direct and Indirect Taxes	Incidence, progressivity, buoyancy, Laffer curve, cess vs surcharge, income tax slabs, Income-tax Act 2025, corporate tax, abolished taxes, reform committees
4	Goods and Services Tax (GST) and GST 2.0	101st Amendment, CGST/SGST/IGST, taxes subsumed, petroleum and alcohol, GST 2.0, compensation cess, GSTAT, federalism and Chhattisgarh
—	Quick Revision	Every number, date and definition on one page

Where It Is Asked

Paper	What to expect
Prelims P-I (Part 1, India GS)	Classification questions (revenue vs capital), deficit definitions and simple calculations, FRBM targets, abolished taxes, GST articles and items outside GST, latest budget figures and GST slabs. Statement-based formats are common
Mains P-V (GS-III), Economy section	Short answers (types of deficit, cess vs surcharge, destination-based GST) and longer analytical answers (fiscal consolidation vs growth, evaluation of the budget, GST and cooperative federalism, tax base)

Exam focus

High-yield: capital receipt test; FD − interest = PD; FRBM 2003 / 2018 / debt anchor; 101st Amendment and Arts 246A, 269A, 279A; GST 2.0 slabs and dates; Budget 2026-27 deficit figures.
Common mistakes: calling disinvestment a revenue receipt; saying petroleum is constitutionally outside GST (that is alcohol); treating the end of the compensation period (2022) as the end of the cess; quoting budget numbers without “BE”.
Chhattisgarh angle for Mains: the state’s FRBM Act (2005) and 2026-27 SANKALP budget; destination-based GST and a producing state; coal under GST 2.0; mineral royalty as non-tax revenue.

Quick Reference: Public Finance at a Glance (as of October 2026)

Item	Key fact
Constitutional term for budget	Annual Financial Statement, Art 112
Budget 2026-27	Presented 1 February 2026; total expenditure about ₹53.47 lakh crore (BE)
Deficits 2026-27 (BE)	Fiscal 4.3%, revenue 1.5%, primary about 0.7% of GDP
Central debt 2026-27 (BE)	About 55.6% of GDP; target 50 ± 1% by 2030-31
Capex 2026-27 (BE)	About ₹12.2 lakh crore (3.1% of GDP)
FRBM Act	2003; amended 2012 and 2018 (escape clause 0.5 point)
Income tax	Income-tax Act, 2025 from 1 April 2026; new regime: no tax up to ₹12 lakh
GST	101st Amendment (2016); launched 1 July 2017
GST 2.0	From 22 September 2025: 5%, 18%, 40%
Compensation cess	Ended on tobacco on 1 February 2026

Start Learning

Begin with the first topic:

→ Union Budget: Structure, Classification and Budget 2026-27