Economy
Public Finance, Budget and Taxation
Union Budget: Structure, Classification and Budget 2026-27
Union Budget for CGPSC: Article 112, revenue vs capital account, budget documents, types of budgeting and the 2026-27 numbers (rupee comes from, goes to).
Prerequisites
- Budget in Parliament and Parliamentary Devices — the procedure (Arts 112–117, stages, cut motions, vote on account). This page covers the economics of the budget and does not repeat the procedure.
- Basic Concepts and National Income — GDP at current prices is the denominator for every “per cent of GDP” figure below.
The Hook: One Rupee, Two Journeys
Connect
A farmer in Mahasamund pays GST on the diesel pump set he buys; a salaried teacher in Bilaspur pays income tax; a coal company in Korba pays corporation tax. On 1 February each year, the Union Finance Minister tells Parliament how all this money will be collected and where it will go: to the soldier’s salary, the interest on old loans, the highway through Bastar, and, through tax devolution, to Chhattisgarh’s own treasury.
What exactly is in that statement, how is every rupee classified, and what did the Budget 2026-27 promise? That is this page.
Why it matters: Prelims asks the classification (is a loan recovery a revenue or a capital receipt?) and the latest headline numbers. Mains GS-III asks you to evaluate the budget: quality of expenditure, capex push, fiscal consolidation and Centre-state transfers.
1. What the Constitution Says
| Item | Detail |
|---|---|
| Constitutional name | Annual Financial Statement (वार्षिक वित्तीय विवरण), Article 112. The word “budget” does not appear in the Constitution |
| Laid by | The President causes it to be laid before both Houses (in practice, the Finance Minister presents it) |
| Must show separately | Expenditure charged on the Consolidated Fund and expenditure made from it (voted); revenue account separate from other expenditure |
| Financial year | 1 April to 31 March |
| State counterpart | Article 202 (Governor; Chhattisgarh Vidhan Sabha) |
Three reforms of 2017 (Budget 2017-18):
- Presentation date advanced from the last working day of February to 1 February, so that the Appropriation Act can pass before 1 April.
- Railway Budget merged with the Union Budget (the separate railway budget dated from the Acworth Committee recommendation, separated in 1924).
- Plan / non-plan classification of expenditure abolished after the Planning Commission was replaced by NITI Aayog (2015). Expenditure is now shown as revenue / capital and by scheme type.
2. The Two Accounts: Revenue and Capital
The budget divides every receipt and every expenditure into a revenue account and a capital account. This is the single most tested idea in the chapter.
The test:
- A capital receipt either creates a liability (borrowing) or reduces an asset (disinvestment, recovery of a loan given earlier).
- A capital expenditure either creates an asset (roads, machinery, shares) or reduces a liability (repaying a loan).
- Everything else is on the revenue account.
graph TD
B["Union Budget"] --> R["Receipts"]
B --> E["Expenditure"]
R --> RR["Revenue receipts
no liability, no asset reduction"]
R --> CR["Capital receipts
liability up or asset down"]
RR --> T["Tax revenue
(net of states' share)"]
RR --> NT["Non-tax revenue
interest, dividends,
RBI surplus, fees, spectrum"]
CR --> D["Debt receipts
market borrowing, small savings,
external loans"]
CR --> ND["Non-debt capital receipts
loan recoveries,
disinvestment"]
E --> RE["Revenue expenditure
salaries, interest, subsidies,
pensions, grants to states"]
E --> CE["Capital expenditure
assets, loans to states and PSUs,
loan repayment"]| Item | Account | Why |
|---|---|---|
| Income tax, corporation tax, GST, customs | Revenue receipt | No liability, no asset sold |
| Dividend / surplus transferred by the RBI | Revenue receipt (non-tax) | Income on the government’s ownership |
| Spectrum auction proceeds | Revenue receipt (non-tax) in Union accounts | Fee for the right to use spectrum, not sale of an asset the government holds on its books |
| Disinvestment of PSU shares | Capital receipt (non-debt) | Reduces an asset |
| Recovery of loans given to states / PSUs | Capital receipt (non-debt) | Reduces an asset (the loan receivable) |
| Market borrowing, small savings (NSSF), treasury bills | Capital receipt (debt) | Creates a liability |
| Interest payments | Revenue expenditure | Does not create an asset |
| Grants-in-aid to states (even if the state builds roads with them) | Revenue expenditure in Union accounts | The Union owns no asset. This is why “effective revenue deficit” exists — see Fiscal Deficit and FRBM |
| Loans to states | Capital expenditure | Creates a financial asset |
| Defence capital outlay (aircraft, ships) | Capital expenditure | Creates an asset |
Effective capital expenditure
Because grants given to states and others for creating capital assets are booked as revenue expenditure, analysts add them back to get effective capital expenditure = capital expenditure + grants-in-aid for creation of capital assets. It is a better measure of how much the Union is really investing.
3. Budget Documents and Types of Budgeting
Main documents presented with the budget
| Document | What it is |
|---|---|
| Annual Financial Statement (Art 112) | The constitutional core: estimated receipts and expenditure |
| Demands for Grants (Art 113) | Ministry-wise estimates of voted expenditure that the Lok Sabha votes on |
| Appropriation Bill (Art 114) | Authorises withdrawal from the Consolidated Fund |
| Finance Bill (Art 110 Money Bill) | Gives effect to the tax proposals |
| FRBM statements | Macro-economic Framework Statement and the Medium-Term Fiscal Policy cum Fiscal Policy Strategy Statement, required by the FRBM Act |
| Budget at a Glance, Receipt Budget, Expenditure Budget | Summaries and details |
| Outcome Budget | Links outlays to measurable outputs and outcomes; first introduced in 2005-06 |
Types of budgeting
| Type | Core idea | India |
|---|---|---|
| Line-item (traditional) budget | Lists inputs (salaries, travel, supplies) for control | Historical base of Indian budgeting |
| Performance budget | Links spending to activities and performance | Recommended by the first Administrative Reforms Commission (1960s) |
| Zero-based budgeting (ZBB) | Every programme justified afresh from zero each year; no automatic carry-over | Associated with Peter Pyhrr (Texas Instruments, USA, 1970s); India experimented with it from the 1980s |
| Outcome budget | Outlays → outputs → outcomes | Union: from 2005-06 |
| Gender budget (जेंडर बजट) | Shows the share of spending that benefits women and girls | Gender Budget Statement from 2005-06 |
| Green budget | Tags environment-related spending | Some states have experimented with it |
4. Union Budget 2026-27: The Numbers
Status of these figures
All figures below are Budget Estimates (BE) for 2026-27, presented on 1 February 2026, unless marked RE (Revised Estimates for 2025-26). BE are replaced by RE in February 2027 and by actuals later. Quote them as “Budget 2026-27 estimates”.
| Item | Budget 2026-27 |
|---|---|
| Presented by | Nirmala Sitharaman, her ninth consecutive Union Budget, on Sunday, 1 February 2026 |
| Total expenditure | About ₹53.47 lakh crore (about 7.7% over 2025-26) |
| Capital expenditure | About ₹12.2 lakh crore (about 3.1% of GDP); effective capex about ₹17.15 lakh crore |
| Gross tax revenue | About ₹44.04 lakh crore (about 11.2% of GDP) |
| Fiscal deficit | 4.3% of GDP (about ₹16.95 lakh crore), down from 4.4% (RE 2025-26) |
| Revenue deficit | 1.5% of GDP |
| Primary deficit | About 0.7% of GDP |
| Central government debt | About 55.6% of GDP, down from 56.1% (RE 2025-26) |
| Market borrowing | Gross about ₹17.2 lakh crore; net (dated securities) about ₹11.7 lakh crore |
| Transfers to states | About ₹26.2 lakh crore in all, of which tax devolution about ₹15.3 lakh crore |
| Defence (Ministry) | About ₹7.85 lakh crore, the largest ministry allocation |
| Personal income tax | No change in slabs; the Income-tax Act, 2025 comes into force on 1 April 2026 — see Taxation |
The speech was framed around three “kartavya” (कर्तव्य, duties), broadly on growth, capacity-building and widening opportunity (paraphrased; read the speech text for the exact wording). Announcements reported included a Semiconductor Mission 2.0, dedicated rare-earth corridors and a push to make India a biopharma manufacturing hub.
Where the rupee comes from and where it goes (BE 2026-27)
| Rupee comes from | Paise | Rupee goes to | Paise | |
|---|---|---|---|---|
| Borrowings and other liabilities | 24 | States’ share of taxes and duties | 22 | |
| Income tax | 21 | Interest payments | 20 | |
| Corporation tax | 18 | Central sector schemes | 17 | |
| GST and other taxes | 15 | Defence | 11 | |
| Non-tax revenue | 10 | Centrally sponsored schemes | 8 | |
| Union excise duties | 6 | Finance Commission and other transfers | 7 | |
| Customs | 4 | Major subsidies | 6 | |
| Non-debt capital receipts | 2 | Pensions | 2 | |
| Other expenditure | the balance |
Reading the table for Mains:
- 24 paise of every rupee is borrowed, and 20 paise goes to interest on past borrowing. That near-match is the core of the case for fiscal consolidation.
- Direct taxes (income + corporation) = 39 paise, more than all indirect taxes together (15 + 6 + 4 = 25 paise).
- The largest single outgo is the states’ share, which is a constitutional obligation fixed by the Finance Commission (41% of the divisible pool for 2026-31 — see Finance Commission).
5. Analysis: How to Evaluate a Budget (Mains)
| Lens | Question to ask | 2026-27 position (BE) |
|---|---|---|
| Fiscal prudence | Is the deficit falling? | 4.4% → 4.3% of GDP; debt anchor of 50±1% by 2030-31 |
| Quality of spending | How much is capital vs revenue? | Capex about 3.1% of GDP, record in rupee terms |
| Committed expenditure | How much is pre-empted? | Interest alone takes about 20 paise of every rupee |
| Federalism | What reaches states, and how untied is it? | Tax devolution (untied) vs centrally sponsored schemes (tied); cesses and surcharges remain outside the divisible pool |
| Equity | Who pays, who benefits? | Rising share of direct taxes is progressive; GST rate cuts in 2025 reduced the burden on common goods |
Chhattisgarh angle: For Chhattisgarh, central transfers (tax devolution plus grants) are a large part of state revenue, so the Union Budget’s devolution figure directly shapes the state’s own budget. Chhattisgarh’s 2026-27 state budget (“SANKALP”, about ₹1.72 lakh crore) was presented on 24 February 2026 — see Chhattisgarh Economy and Schemes.
Memory Tricks
Capital = Liability up or Asset down
“CLAD”: a Capital receipt either raises a Liability or reduces an Asset; anything else is revenue. Mirror image for expenditure: capital expenditure creates an asset or cuts a liability.
Rupee comes from: 24-21-18-15
Read top-down like a countdown: Borrowing 24, Income tax 21, Corporation tax 18, GST 15. Rupee goes to: States 22, Interest 20 — “22 for the states, 20 for the past”.
2017: the D-R-P year
Date moved to 1 February, Railway budget merged, Plan/non-plan scrapped — all in Budget 2017-18.
Don’t Confuse
| This | vs | That |
|---|---|---|
| Disinvestment proceeds — capital receipt (asset reduced) | vs | RBI dividend — revenue receipt (non-tax) |
| Loan to a state — capital expenditure | vs | Grant to a state — revenue expenditure, even if used for a road |
| Charged expenditure — not voted (e.g. President’s emoluments, debt charges) | vs | Voted expenditure — needs Lok Sabha approval through demands for grants |
| Budget Estimates (BE) — projections in February | vs | Revised Estimates (RE) — mid-course figures a year later |
| Outcome budget (2005-06) | vs | Performance budget (older; activity-based) |
Common Mistakes
MCQ traps
- “The word ‘budget’ is used in Article 112.” False. The Constitution says Annual Financial Statement.
- “Recovery of loans is a revenue receipt because the money comes back.” False. It reduces an asset, so it is a capital receipt (non-debt).
- “Grants for creating capital assets are capital expenditure of the Union.” False. They are revenue expenditure; that is why effective revenue deficit and effective capex are calculated.
- “Interest payments are capital expenditure because they relate to loans.” False. Interest is revenue expenditure; only repayment of principal is capital.
- “The railway budget is still presented separately.” False. It was merged in 2017.
- Quoting 2026-27 figures without “BE” in a Mains answer. Always date and label estimates.
Practice
All questions below are original practice questions written in CGPSC style. They are not previous-year questions.
Level 1: Foundation
- The Constitution calls the budget the ______ (Article ______).
- Is the sale of government shares in a public sector company a revenue or a capital receipt?
- In Budget 2026-27, how many paise of every rupee were estimated to come from borrowings and other liabilities?
Answers
- Annual Financial Statement, Article 112.
- Capital receipt (non-debt), because it reduces an asset.
- 24 paise.
Level 2: Prelims MCQs
Q1. Which of the following are capital receipts of the Union government?
- Recovery of a loan given to a state government
- Dividend received from the Reserve Bank of India
- Proceeds from disinvestment in a public sector undertaking
- Money raised through treasury bills
- (a) 1 and 2 only
- (b) 1, 3 and 4 only
- (c) 2, 3 and 4 only
- (d) 1, 2, 3 and 4
Answer and explanation
(b) 1, 3 and 4 only. Loan recovery and disinvestment reduce assets; treasury bills create a liability. All three are capital receipts. The RBI’s surplus transfer is non-tax revenue, a revenue receipt.
Q2. Consider the following statements about the Union Budget:
- The presentation date was advanced to 1 February from the Budget for 2017-18.
- The separate Railway Budget was merged with the Union Budget in the same year.
- The plan and non-plan classification of expenditure continues to be used in the Union Budget.
Which of the statements given above is/are correct?
- (a) 1 only
- (b) 1 and 2 only
- (c) 2 and 3 only
- (d) 1, 2 and 3
Answer and explanation
(b) 1 and 2 only. All three changes are linked to Budget 2017-18, which is the trap: the plan/non-plan distinction was abolished that year, not retained. Expenditure is now classified as revenue/capital and by scheme type.
Q3. Match List I (Budgetary concept) with List II (Description):
| List I | List II |
|---|---|
| A. Zero-based budgeting | 1. Links outlays to measurable results |
| B. Outcome budget | 2. Shows spending that benefits women |
| C. Gender budget | 3. Every programme justified afresh each year |
| D. Charged expenditure | 4. Not submitted to the vote of the Lok Sabha |
- (a) A-3, B-1, C-2, D-4
- (b) A-1, B-3, C-2, D-4
- (c) A-3, B-2, C-1, D-4
- (d) A-3, B-1, C-4, D-2
Answer and explanation
(a) A-3, B-1, C-2, D-4. ZBB starts each programme from zero; the outcome budget (from 2005-06) links money to results; the gender budget statement (also from 2005-06) tracks spending on women; charged expenditure (Art 113(1)) may be discussed but is not voted.
Q4. In the Union Budget 2026-27 (Budget Estimates), which of the following was the largest single item in “where the rupee goes”?
- (a) Interest payments
- (b) Defence
- (c) States’ share of taxes and duties
- (d) Central sector schemes
Answer and explanation
(c) States’ share of taxes and duties, at 22 paise. Interest payments were a close second at 20 paise, followed by central sector schemes (17) and defence (11).
Q5. A Union grant to Chhattisgarh for building rural roads is shown in the Union Budget as:
- (a) Capital expenditure, because a road is an asset
- (b) Revenue expenditure, because no asset is created for the Union
- (c) A capital receipt of the Union
- (d) Off-budget borrowing
Answer and explanation
(b). A grant creates no asset on the Union’s books, so it is revenue expenditure for the Union, even though the state builds an asset with it. This is why the effective revenue deficit and effective capital expenditure are computed.
Level 3: Mains Answer Writing
Q1. (60 words) Distinguish between revenue receipts and capital receipts with two examples of each.
Model answer outline
- Revenue receipts: neither create a liability nor reduce an asset; recurring. Examples: income tax, GST, RBI dividend.
- Capital receipts: create a liability (borrowings, small savings) or reduce an asset (disinvestment, loan recovery).
- Conclusion: the distinction matters because borrowing to meet revenue expenditure (revenue deficit) is unsustainable, while borrowing for capital assets can pay for itself.
Q2. (150–200 words) “The Union Budget 2026-27 balances fiscal consolidation with public investment.” Critically examine.
Model answer outline
- Intro: Presented on 1 February 2026; fiscal deficit 4.3% of GDP (BE), capex about ₹12.2 lakh crore.
- Consolidation: deficit down from 9.2% (2020-21) to 4.4% (2025-26 RE) to 4.3%; shift to a debt anchor (50±1% by 2030-31); debt 55.6% of GDP.
- Investment: capex about 3.1% of GDP; effective capex about ₹17.15 lakh crore exceeds the fiscal deficit, so borrowing is broadly financing assets.
- Concerns: interest takes about 20 paise of each rupee; revenue deficit still 1.5% of GDP; cesses/surcharges outside the divisible pool; private investment yet to match public capex.
- Chhattisgarh angle: tax devolution (about ₹15.3 lakh crore to all states) and interest-free capex loans to states shape the state’s SANKALP budget.
- Conclusion: consolidation is on track; sustaining it needs revenue buoyancy and better quality of revenue spending.
Quick Revision Table
| Fact | Detail |
|---|---|
| Constitutional term | Annual Financial Statement, Art 112 (state: Art 202) |
| 2017 reforms | 1 February date; railway budget merged; plan/non-plan abolished |
| Capital receipt test | Creates liability or reduces asset |
| Outcome budget / Gender budget | Both from 2005-06 |
| ZBB | Peter Pyhrr; justify from zero |
| Budget 2026-27 presented | 1 February 2026 (Sunday); Sitharaman’s 9th consecutive |
| Total expenditure 2026-27 (BE) | About ₹53.47 lakh crore |
| Capex 2026-27 (BE) | About ₹12.2 lakh crore (3.1% of GDP) |
| Fiscal / revenue / primary deficit (BE) | 4.3% / 1.5% / about 0.7% of GDP |
| Debt (BE) | About 55.6% of GDP |
| Rupee comes from | Borrowing 24, income tax 21, corporation tax 18, GST 15 |
| Rupee goes to | States’ share 22, interest 20, central schemes 17, defence 11 |
Key Takeaways
Key Takeaways
- The budget is the Annual Financial Statement (Art 112); 2017-18 brought the 1 February date, the railway merger and the end of plan/non-plan.
- Capital items change the government’s assets or liabilities; everything else is revenue. Grants to states are revenue expenditure for the Union.
- Budget 2026-27 (BE): fiscal deficit 4.3%, revenue deficit 1.5%, debt 55.6% of GDP, capex about ₹12.2 lakh crore.
- 24 paise borrowed, 20 paise for interest — the strongest single argument for consolidation.
- In Mains, evaluate a budget on prudence, quality of spending, federalism and equity, always labelling BE/RE.
What’s Next
- Fiscal Deficit and the FRBM Act — the deficit measures and the rules that cap them
- Taxation: Direct and Indirect Taxes — where the 64 paise of tax come from
- Centre-State Financial Relations — the divisible pool and transfers to states
- Public Finance — Quick Revision
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