Class 12 Macro Economics Notes · CBSE
Structure and Types of Budget
Understand the Revenue Budget and Capital Budget split, three types of budgets (balanced, surplus, deficit), progressive/proportional/regressive tax systems, and plan vs non-plan expenditure classification.
Last updated: 1 Sep 2026
Notes
Structure of the Budget
The government budget splits into two components based on the nature of financial activity — Revenue Budget (day-to-day operations) and Capital Budget (asset creation and borrowing).
Government Budget
Revenue Budget
Capital Budget
Types of Budgets
Based on the relationship between estimated receipts and expenditure, budgets are classified into three types:
Balanced Budget
Receipts = Expenditure
Ideal but rarely achieved. Indicates financial stability.
Surplus Budget
Receipts > Expenditure
Reduces aggregate demand. Useful during inflation.
Deficit Budget
Receipts < Expenditure
Increases aggregate demand. Common in developing countries.
Tax Systems
Direct taxes are classified by how the rate changes with income:
Proportional
Constant rate regardless of income.
Flat 10%: ₹1,00,000 income → ₹10,000 tax.
Progressive
Rate increases with income. India follows this.
10% up to ₹1L, 20% for ₹1-1.5L.
Regressive
Rate decreases as income rises.
₹1,000 on ₹10K (10%), ₹1,200 on ₹15K (8%).
Plan vs Non-Plan & Developmental vs Non-Developmental
| Aspect | Plan Expenditure | Non-Plan Expenditure |
|---|---|---|
| What | Programs in current five-year plan | Outside planned programs |
| Focus | Development & investment | Routine government functions |
| Examples | Agriculture, energy, transport | Interest, defence, subsidies |
| Aspect | Developmental | Non-Developmental |
|---|---|---|
| What | Directly adds to goods & services | Essential general services |
| Nature | Productive | Administrative/supportive |
| Examples | Education, health, infrastructure | Defence, police, justice |
Quick Check: Building a new highway — is this Plan or Non-Plan expenditure?