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Interim Budget 2019 and Vote on Account

Feb 01, 2019 | 1 year ago | Read Time: 6 minutes | By iKnowledge Team


With elections looming on the horizon, the Modi-government presented its first interim Budget today, which was unique, to say the least, and included multiple retrospective sops for the rural, the informal and the middle-class segments of the society. “This not just an interim Budget, its the medium for India’s growth story,” said interim Finance Minister Piyush Goyal while concluding the 13th interim Budget since independence.

The highlights, as widely anticipated, were the interim Finance Minister Piyush Goyal’s announcement of assured income support to small farmers and income tax waivers for the middle class.

 It also made several other big-ticket populist announcements such as a “mega” pension plan for the informal sector and interest rate waivers on farm loans, effective from current fiscal itself, to woo the public before it votes in May. It also raised the gratuity and standard deduction limits and declared interest rate sops for the small businesses.

Most market participants were already expecting an expansionary budget, with Goyal, on Jan 31, declaring that a “Budget is a Budget.” Today, he presented a 3.36-trillion-rupee capital expenditure outlay for 2019-20, and a “vision” for the upcoming decade, which aspires to make India a 5-trillion-dollar economy in the next five years and a 10-trillion dollar one three years thereafter.

However, the interim Budget was a marked departure from the established tradition of just seeking a vote-on-account, with former Finance Minister P Chidambaram calling it an “account for vote”.

What is an Interim Budget & Vote on Account

Interim Budget is the budget presented by the government if it does not have the time to present a full budget. A vote on account is a special provision that the government takes from the Parliament for funds sufficient to incur expenditure for a part of the year.

Since independence, whenever an incumbent government has few months left before the end of its tenure, it has to seek the Parliament’s approval for spending money in the new fiscal till the post-election government takes over. The rationale behind this has been that its the job of the new regime to decide the Budget for the full year.

Conventionally, through the interim Budget, the currently ruling polity will only seek a ‘vote-on-account,’ or the permission to withdraw funds from the main bank account of the country – the Consolidated Fund of India  – for a part of the upcoming fiscal.  Essentially, it is the interim permission of the parliament to the government to spend public money.

However, vote-on-account is not only limited to the interim Budget. Even with regular Budget, the government cannot withdraw money until the appropriation is made by law. For that, an appropriation bill is presented during the Budget process, which may take some time to get the Parliament’s approval and become a law. In the meantime, a vote on account allows it to keep incurring expenditures from April 1.

Difference Between Interim Budget and a Vote on Account

A vote-on-account only deals with the expenditure side of the government’s budget while an Interim Budget is a complete set of accounts, including both expenditure and receipts, akin to a full budget.

So, while the Interim Budget also has income and expenditure estimates for the entire year, like a normal Budget, the incoming government has full liberty to make changes when it presents the final Budget for the year. The Modi-government seems to have circumvented by announcing several of the populist measures with effect from Dec 2018, making them a part of the current fiscal itself.


Following are the key highlights of the Union Budget 2019-20 presented by Hon’ble Mr. Piyush Goyal, Union Finance Minister:

Tax changes:

– No income tax for income up to Rs 6.5 lakh (Rs 5 lakh + Rs 1.5 lakh under 80C of the Income Tax Act)

– Full tax rebate for income up to Rs 5 lakh per annum

– No tax on notional rent on second self-occupied house

– Capital Gains exemption under Section 54 to be available on two house properties

– Tax benefit of Rs 18,500 crore given to three crore middle-class tax payers

– Standard deduction raised to Rs 50,000 from Rs 40,000

– TDS limit hiked from Rs 10,000 to Rs 40,000 on post-office savings

– Group of Ministers looking at ways to ease GST burden on homebuyers


– FY20 fiscal deficit target set at 3.4 percent

– Expenditure target for FY20 set at Rs 27.84 lakh crore

– Capital expenditure for FY20 set at Rs 3.36 lakh crore

– FY19 fiscal deficit pegged at 3.4 percent of GDP; current account deficit at 2.5 percent of GDP


– Farmers with less than two hectares to be offered Rs 6,000 per year as direct transfer under PM Kisaan Samman Nidhi. The benefit will be transferred directly into the bank account of beneficiary farmers in three instalments of Rs 2,000 each. Around 12 crore farmers to benefit from the scheme. This scheme will cost the government around Rs 75,000 crore

– Mahatma Gandhi National Rural Employment Guarantee program’s allocation increased by Rs 5,000 crore to Rs 60,000 crore for FY20

– Farmers struck by natural calamities will now receive 2-5 percent interest subvention under insurance scheme

– Two percent interest subsidy to be given to farmers involved in animal husbandry activities via kisaan credit card scheme. An additional three percent subsidy will be paid on timely payment of loans

– Government announces setting up of Rashtriya Kamdhenu Aayog to

enhance productivity of cows

Rural infrastructure

– Pradhan Mantra Gram Sadak Yojana allocation set at Rs 19,000 crore, the same as FY1


– Separate Department of Fisheries created, two percent interest subvention for those in fisheries

– To provide Rs 750 crore in FY19 to support animal husbandry and fishing


– Monthly pension of Rs 3,000 for workers in the unorganised sector to be paid out after retirement. Pension scheme to benefit 10 crore workers in the unorganised sector. Those who join at 18 years of age will have to contribute a mere Rs 55 per month. The government will contribute equal matching share in the pension account. This scheme will cost the government Rs 500 crore

– Employees’ State Insurance eligibility cover limit has been raised to Rs 21,000 per month from Rs 15,000 per month

– Gratuity limit increased from Rs 10 lakh to Rs 30 lakh

– Workers who suffer grievous injuries will now receive Rs 6 lakh from Rs 2.5 lakh through Employee Provident Fund Organisation (EPFO)


– Rs 38,572 crore allocated for the National Education Mission


– Another All India Institutes of Medical Sciences to be set up in Haryana


– Rs 76,800 crore allocated for welfare of Scheduled Castes (SCs) and Scheduled Tribes (STs)

– Centre to implement special strategy for uplift of nomadic tribes


– Single window clearance for film-makers. Anti-camcording provision to be introduced to Cinematography Act to combat film privacy


– Railway capital expenditure raised to Rs 64,586 crore in FY20 from Rs 53,060 crore in FY19


– Defence budget for FY20 raised to Rs 3 lakh crore

The top highlights of Goyal’s speech, though widely anticipated, were the announcements of the assured income support for small farmers and income tax waivers for the middle class. Along with that the Goyal also outlined a “mega” pension plan for the informal sector and interest rate waivers on the farm and small business loans.

The government also outlined a “vision” for the upcoming decade, with an aspiration of making India a 5-trillion-dollar economy in the next five years and a 10-trillion dollar one three years thereafter.

Among the announcements, the one likely to have the biggest impact on the life insurance sector was the government’s declaration that income of up to 500,000 rupees will get a full income tax rebate, which could rise up 650,000 rupees with tax savings through investments. Even the standard deduction for the salaried has been raised to 50,000 rupees from 10,000 rupees. These factors will aid in improving the life insurance penetration in the country.

The increase in gratuity limits to 2 million rupees from 1 million earlier and standard deductions by 400% to 50,000 rupees will also boost the middle-class savings.

The government has proposed to raise the TDS (tax deductible at source) threshold for rent to 240,000 rupees and on bank interest to 40,000 rupees. It has also waived the tax on notional rent for a second self-occupied home and income tax benefits for affordable housing have been extended by a year. Even the capital gain tax benefit has been rolled over to two houses from one. It has also indicated plans for a future GST-rate cut for homebuyers.

The government plans to eliminate human interference in tax verification, scrutiny within 2 years by going fully-digital.

For the election-crucial farm sector, the BJP-led government announced the formation of PM Kisan Fund, which will provide fixed annual income support of 6,000 rupees, to be paid in three equal installments, with effect from December 2018. The government has promised to deposit the first installment soon, making a retrospect allocation of 200 billion rupees in the current fiscal. From the next year, it is likely to cost 750 billion rupees, which will be funded entirely by the government.

Along with that, Goyal also announced interest subvention for farmers hit by natural disasters and for animal husbandry and fisheries.

The government also declared plans to create a “mega” pension plan for the informal sector, with people having a monthly income of fewer than 15,000 rupees, which assures them a fixed pension of 3,000 rupees after reaching the age of 60. It also said that a bonus of 7,000 rupees shall be paid to labourers making less than 21,000 rupees a month.


Clearly, it was a populist budget, which may certain some fiscal strain. However, the key takeaway that it will drive consumption by creating significant disposable income. The government’s 10-point vision is also a positive move as it covers a wide focus area comprising building next-gen infrastructure, Digital India, boosting startups, clean and green India, bringing down imports, expanding rural industrialization among others.



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