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Demystifying essential budget related terms

Budgeting is a critical practice to ensure financial management. This essential activity is practised across households and businesses to track monetary movements. With diverse ways to save and invest money, like insurance policies, trading facilities, savings accounts, and budget-tracking is vital. 

However, the complicated budget terms can often be daunting for an ordinary individual. Misinterpreting a term can lead to financial loss. Thus, It is vital to understand the different words and what they mean. This article is a thorough glossary of budget terms to aid your budgeting journey. 

What is budget?

To master the terms used in budget, a clear idea of what budget means is crucial. 

A budget estimates income and spending for a given future period. It is often created and reviewed regularly. Any organisation that wants to spend money, including governments, corporations, individuals, and homes of all income levels, may make a budget.

Types of budgets

There are three broad classifications of budget based on their offering. The budget terms associated with these are used in documents and statements. 

  1. Balanced Budget – Revenues and costs are expected to be equal.
  2. Surplus Budget –  Profits are projected.
  3. Deficit Budget – Spending will exceed revenues.

Simple budget terms

The budget terms are used for banks, financial institutions, government bodies, and individuals. Understanding a few essential terms in the budget is sufficient for individuals using budgeting for household expenses.

  1. Income – This refers to the money earned or received by a business or an individual. It can be wages, dividends, interests, etc. 
  2. Expenses– This budget term denotes the money spent earning income or maintaining a household or business. Expenses can be fixed or variable.
    • Fixed expenses are those which remain constant each month. Rents and insurance premiums are fixed costs. 
    • Variable expenses are those which change from month to month. This can be shopping or entertainment. 
  3. Emergency fund– The money is set aside for emergencies such as medical requirements and repair works. 
  4. Savings – Savings denote the money kept for future use. It can be short-term or long-term. It can also be done through assets through savings accounts or mutual funds. 
  5. Interest Rate – This term is used in budget to refer to the percentage charged for loaning money. It can also be defined as the return secured on an investment. It is critical to evaluate debts and savings.
  6. Credit Score – It is the creditworthiness of any individual. It is calculated based on past credit history and payment patterns.
  7. Return On Investment (ROI)– A budget term employed to determine an investment’s profit percentage.

Important budget terms 

Understanding critical yet important terms in budget is vital to delving into the broader budgeting space.

Income Tax

Income tax is a direct tax imposed on the profits of both people and companies. The national government collects Income Tax by the 1961 Income Tax Act. The government’s primary source of income is income taxes, which are used to pay for commitments, fund initiatives, and supply residents with commodities.


The budget term “inflation” describes a decrease in buying power or a steady increase in the cost of goods and services that raises living expenses. Stated differently, it assesses the difference between total demand and supply. The price level rises when the total demand exceeds the total supply.

Excise duty

The Excise Duty Tax is an indirect tax that the government levies on the production, licensing, and sales of domestic items. The government implemented a Goods and Services Tax (GST) in 2017 to replace the previous system of many Excise Duties. 


One of the significant budget terms is GDP. The GDP can be computed quarterly or annually. The gross domestic product or GDP is the entire market value of all completed products and services produced in a nation over a certain period. GDP is the benchmark used in most countries to assess economic circumstances. 

Fiscal Deficit

Fiscal refers to the government’s income. Simply put, a fiscal deficit is the difference between the government’s non-borrowed revenue and its outlays for spending. The difference between the total and non-borrowed receipts is the fiscal deficit if the government’s outlays exceed its non-borrowed revenues. 

Union Budget

The government’s projected receipts and outlays for a given year are listed in the Union Budget, also known as the Annual Financial Statement. A budget is a financial strategy for a given time frame. The Union Budget delineates the government’s plan for distributing funds among various initiatives and organisations.

Finance Act

As its budget term implies, a Finance Act deals with the nation’s finances and may address taxes, revenues, borrowing by the government, etc.

Capital Account

One of the main elements of a country’s balance of payments may be thought of as the capital account. It provides an overview of a nation’s revenue and capital expenditures. Portfolio investments, foreign direct investments, and other things are included in this account.

Contingency fund

It is a fund that the government uses to cover unanticipated expenses in times of emergency, disaster, or other unexpected catastrophe.

Financial year

This is an important term in budget. A financial year is 12 months used for taxes and financial reporting that does not always begin on January 1. It is also referred to as a budget year, fiscal year, or occasionally FY. Some firms may also change their financial years to align with the financial reporting requirements of their associated enterprises abroad. This is due to fluctuating dates.  

Direct and Indirect taxes

The government’s primary source of revenue is taxes. In India, there are two main types of taxes. 

  • Direct tax – The tax that a person pays to the government directly is known as a direct tax. This covers both corporation and income taxes.
  • Indirect tax: Indirect tax is generated by the people and given to an individual or organisation responsible for paying the tax to the government.

Government bodies associated with budgeting

Knowing the government bodies that regulate budgets and generate budget terms is also essential. It usually varies country-wise, and different nations have different names, but the key bodies are –

  1. Ministry of Finance
  2. Department of Economic Affairs – Budget Division
  3. The Central Government


Budgeting is an integral element of finance management. To successfully handle expenses, understanding the budget terms is essential. From the basic to the more intricate terms, each plays a vital role in shaping an individual’s financial journey. By demystifying these budget terms, individuals and businesses confidently manage their finances and make informed decisions. This will ultimately lead to long-term economic well-being. 


What is meant by a budget?

A spending strategy that takes income and costs into account is called a budget.

Who decides the budget of a nation?

The Ministry of Finance, the Budget Division of the Department of Economic Affairs, and the Central Government decide a nation’s budget. 

When does a fiscal year start?

Different nations have different start of their fiscal year. In India, a fiscal year starts on 1st April. 

What is an interest rate?

In simple terms, it is the percentage paid to borrow money. It can also mean the percentage received against an investment. 

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