25 Mar Finance Bill vs. Money Bill vs. Ordinary Bill
This article covers “Daily Current Affairs” and the Topic of Finance Bill vs. Money Bill vs. Ordinary Bill
SYLLABUS MAPPING:
GS-2-Polity and Governance– Finance Bill vs. Money Bill vs. Ordinary Bill
FOR PRELIMS
What is a Finance Bill? How does it play a crucial role in India’s economic governance?
FOR MAINS
What are the major components of the Finance Bill?
Why in the news?
Senior Congress leader Shashi Tharoor has criticized the Finance Bill, calling it a “classic case of patchwork solutions” amid India’s serious structural economic challenges. Speaking in Lok Sabha, he pointed out that growth targets were being revised downward, with even 6% growth becoming difficult to achieve. Tharoor also highlighted the fiscal disparity between the Centre and southern states, arguing that despite their significant contribution to the economy, they were not receiving a fair share of funds. Additionally, he flagged concerns over sectoral imbalances, noting that while agriculture’s workforce has grown, manufacturing has shrunk to 15% of GDP—the lowest this century. He also pointed to stagnating exports and rising financial strain even on higher-income earners.
What is a Finance Bill?
The Finance Bill is a legislative proposal introduced annually in the Indian Parliament to implement the government’s financial policies, including taxation, expenditures, and borrowings for the upcoming fiscal year. Once approved, it becomes the Finance Act, giving legal effect to these financial proposals.
Key Highlights from the Union Budget 2025-2026:
1. Income Tax Reforms:
New Tax Regime Adjustments: The exemption threshold has been raised, with income up to ₹12 lakh now tax-free, up from the previous ₹7 lakh limit. Tax slabs under the old regime remain unchanged.
Wikipedia
2. Support for Non-Governmental Organizations (NGOs): Under Section 12A, the validity period for tax exemptions has been extended from 5 to 10 years for institutions with an income of ₹5 crore and below in both preceding years.
3. International Financial Services Centre (IFSC): The commencement date for IFSC unit operations eligible for tax exemptions has been extended to March 31, 2030, providing a longer window for businesses to benefit from these incentives.
4. Startup Tax Incentives: The eligibility period for income tax exemptions for startups has been extended. Startups incorporated up to April 1, 2030, can avail of tax benefits for three consecutive years within their first ten years of operation.
5. Customs Duty Adjustments: Reductions in customs duties have been implemented for specific items to encourage imports and support domestic industries.
6. Tax Deducted at Source (TDS) and Tax Collected at Source (TCS):
TDS Limit: The annual threshold for TDS has been increased to ₹6 lakh.
TCS Limit: The threshold for remittances has been raised from ₹7 lakh to ₹10 lakh.
Compliance Mechanism Enhancements: The time limit for assessments has been extended from 2 to 4 years. Penalties are structured at 60% for the third year and 70% for the fourth year, encouraging timely compliance.
Constitutional Provisions
1. Article 110: Money Bill Definition: The Finance Bill is a Money Bill, as it deals with taxation, borrowing, and expenditures from the Consolidated Fund of India.Money Bills can only be introduced in the Lok Sabha and require the Rajya Sabha’s recommendations, but the Upper House cannot reject them.
2. Article 112: Annual Financial Statement (Union Budget): The Union Budget, which includes the Finance Bill, is presented under this article. It outlines the government’s estimated revenues and expenditures for the upcoming financial year.
3. Article 117: Financial Bills: While all Money Bills are Financial Bills, not all Financial Bills are Money Bills. Financial Bills must be introduced in Lok Sabha first, but they require approval from both Houses of Parliament.
4. Article 265: No Tax Without Authority of Law: No tax can be levied or collected unless it is authorized by law, making the passage of the Finance Bill crucial for implementing tax policies.
Components of finance Bill
1. Taxation Provisions: Modification of existing tax rates (e.g., changes in Income Tax slabs, GST, Customs, and Excise Duties).Continuation of existing taxes beyond their approved period
2. Government Borrowings: Provisions related to government loans, bonds, and other borrowing mechanisms.Authorization for raising funds to meet budgetary deficits
3. Revenue and Expenditure Policies: Allocation of government revenues for various schemes and projects. Guidelines on public expenditure management
4. Tax Exemptions and Incentives: Special relief measures for specific sectors, businesses, or individuals. Exemptions for startups, industries, and NGOs (as seen in recent Finance Bills)
5. Customs and Excise Duties Adjustments: Import/export duty modifications to boost or restrict trade in specific sectors. Tariff changes to protect domestic industries
6. Compliance and Penalty Mechanisms: Extension or revision of assessment timelines for tax compliance. Introduction of new penalties for tax evasion or delayed payments
7. Amendments to Existing Financial Laws: Modifications to laws like the Income Tax Act, GST Act, and Customs Act.Legal provisions to streamline taxation and revenue collection
Comparison Table: Finance Bill vs. Money Bill vs. Ordinary Bill
| Feature | Finance Bill | Money Bill | Ordinary Bill |
|---|---|---|---|
| Definition | A bill that contains financial provisions like taxation, fund allocation, and amendments to tax laws. | A bill that only deals with taxation, government borrowing, and expenditure from the Consolidated Fund of India. | A bill that deals with general legislative matters, not necessarily financial. |
| Constitutional Basis | Article 117 | Article 110 | No specific article, covered under the general legislative process. |
| Scope | Covers financial proposals, tax amendments, and fund allocations. | Strictly deals with government revenue, expenditure, taxation, and borrowing. | Covers all other legislative matters such as education, health, infrastructure, etc. |
| Introduction | Only in Lok Sabha | Only in Lok Sabha | Can be introduced in either Lok Sabha or Rajya Sabha |
| Rajya Sabha’s Role | Can recommend amendments, but Lok Sabha has the final say. | Can suggest changes, but Lok Sabha can reject them. | Can amend, reject, or approve the bill. |
| Approval Process | Must be passed by both Houses of Parliament. | Must be passed by Lok Sabha and sent to Rajya Sabha, but Rajya Sabha cannot reject it. | Must be passed by both Houses of Parliament. |
| President’s Approval | Required | Required | Required |
| Example | Union Budget Finance Bill, which includes tax slab changes, GST amendments, etc. | A bill imposing a new tax or increasing government borrowing. | Bills related to education, health, employment, infrastructure, etc. |
Importance of Finance Bill
1. Legal Framework for Taxation: Serves as the legal foundation for the Union Budget, detailing proposed tax changes.
2. Authority for Revenue Collection: Grants the government the legal power to collect taxes, including income tax, customs duties, and excise duties.
3. Amendments to Tax Laws: Enables modifications to existing tax laws, ensuring they align with government financial policies.
4. Covers Financial Matters: Addresses key financial aspects such as revenue, expenditure, borrowings, and fiscal policies.
5. Implementation of Budget Proposals: Acts as the mechanism for executing the government’s financial proposals.
6. Parliamentary Approval: Requires approval from Parliament, ensuring transparency and legal validation of financial changes.
7. Becomes Finance Act: Once passed, it transforms into the Finance Act, legally enforcing tax and financial provisions.
Conclusion
The Finance Bill plays a crucial role in shaping India’s financial landscape by outlining taxation policies, revenue collection mechanisms, and expenditure plans. As a Money Bill, it ensures that the government’s financial proposals are legally enforced while maintaining fiscal discipline. With constitutional backing under Articles 110, 112, 117, and 265, it serves as the backbone of economic governance, supporting taxation reforms, government borrowings, and financial incentives.
Download Plutus IAS Current Affairs (Eng) 25th Mar 2025
Prelims Questions
Q. With reference to the Finance Bill, consider the following statements:
1. The Finance Bill is always a Money Bill as per Article 110 of the Indian Constitution.
2. The Finance Bill includes provisions related to taxation, borrowings, and expenditure of the government.
3. Once passed by Parliament, the Finance Bill becomes the Finance Act, giving legal effect to tax changes.
How many of the above-given statements are correct?
A. Only one
B. Only two
C. All three
D. None
Answer: B
Mains Questions
Q. Discuss the significance of the Finance Bill in India’s economic governance. How does it differ from a Money Bill and an Ordinary Bill? (250 words, 15 marks)
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