Ultimate Guide on How does Government Spend my Taxes | What was the Use of Money Collected from Taxes?

At some point in your life, you have no doubt pondered this thought, and in this article, you will find out how the government uses tax money. Taxes are a source of income for governments, and to take care of their everyday expenses, those governments announce an annual union budget through parliament.

The reinvesting of federal taxes you pay into technology and education is one way that the government contributes to the health of the government and economy. By paying taxes, every citizen contributes to the well-being of the government and the economy. This article states the What was the Use of Money Collected from Taxes, various sources in which the government spends the money collected by the people on the welfare and development of the country.

• How does the Government Spend my Taxes?
• Why do we Pay Taxes to the Government?
• Who is liable to pay tax in India?
• Why do so less people in India pay tax?
• Can India survive without taxes?
• What is the penalty for not Paying Tax?

How does the Government Spend my Taxes?

Capital receipts, non-tax receipts, and tax receipts all constitute government revenue, however, taxpayers make almost 53.77 percent of the government’s revenue, capital receipts represent 33.57 percent, and non-tax revenue consists of 12.66%. Tax authorities can choose how funds will be spent depending on how much tax they collect. It gets 53p out of every rupee in direct and indirect taxes.

Payment of Intrest

As part of the government’s total budget, the bulk of the money it spends each year goes to pay interest on loans. Since the government takes loans, it is required to pay interest related to these loans. For fiscal 2020-21, interest is expected to consume 23.31% of the budget.

Defense and Security

A significant amount of your money is also used to fund the country’s defense and security-related expenditures. India is one of the world’s biggest exporters of weapons.

• Approximately 11.1%, that is Rs 3.4 crore, of the annual union budget is allocated for defense.
• Capital expenditures, including retooling and expanding the military, comprise about 35 percent of the defense budget.
• Furthermore, the remaining budget is used to support the force’s day-to-day operations, thus contributing to the country’s defense mechanism and security.

Government Welfare Scheme

Spending on the government is basically divided into several sectors, including healthcare, education, social security, and others. A significant amount of government spending is devoted to centrally sponsored schemes (CSS), which are implemented by the government but are funded by the government.

Social Security

The Social Security system provided retirement and survivors’ benefits along with disability payments in the 2019 fiscal year, with expenditures of about $1 trillion. The Social Security system is a mandatory component of the federal budget, providing retirement and survivors’ benefits as well as disability payments to the elderly, disabled, and other individuals.

Subsidies

By subsidizing specific industries, the government aims to keep the prices of products and services low to ensure that most people can afford them, as well as to promote production and consumption. All goods or services that are provided below cost to certain segments of the population (for example, fertilizer, train tickets, LPG, metro rail fares) are considered subsidies.

Pension

It is important for the government to show its responsibility as an employer by providing pensions for retired employees. Pensions are another substantial government expense. Former government employees, military personnel, and retirees receive a pension.

States and Union Territory Transfers

For emergency management and development, the central government provides grants and transfers to the union territories and states at a rate of approximately 8%.

Welfare and Education

It is estimated that a sizable portion of taxes is used to improve healthcare in the country. There are government hospitals that provide medical services for free or at minimum cost. Over the decades, the quality of healthcare provided by government hospitals has increased dramatically, and it has been made possible only by taxpayers paying taxes. There are government schools with low tuition fees, as well as billions of rupees are spent every year on the development of defense and infrastructure, all of which help to further boost the nation’s strength and prosperity.

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Why do we Pay Taxes to the Government?

Before seeing how is our tax money is used for the good it is very important to learn why do we pay taxes to the government:

Public services such as roads and police services are provided by governments. In addition, governments pay salaries to employees. The public pays indirectly for this work by paying taxes. This can be done directly by spending money or indirectly by paying for the time spent by public servants in government offices. The government must therefore make regular decisions about how to spend, what to spend, and how to fund these costs. This is the reason why we pay taxes to the government.

FAQs on How is Tax Money Used by the Government

1. Who is liable to pay tax in India?

The government of India taxes individuals who exceed 2.5 lakhs of income below the age of 60. If an individual earns more than 3 lakhs and is over the age of 60, he/she is required to pay taxes.

2. Why do so less people in India pay tax?

There are very few income taxpayers in India, not because millions of people hide their income and evade taxes, but because India’s income tax structure is designed in such a way that only a small percentage of people pay income taxes.

3. Can India survive without taxes?

In India, personal income taxes contribute less than 15% of the budget. If the government can reduce their spending by 15%, they can simply abolish the personal income tax and it will have no effect on the budget. This means that abolishing the tax is possible because there is less dependence on it.

4. What is the penalty for not Paying Tax?

Those who do not file and pay their taxes will be fined heavily. According to section 234F of the Income Tax Act, a fine of Rs. 10,000 is imposed for failure to file tax returns, which is quite a steep price for the average person to pay.

Conclusion

Each individual and company who earns income must pay taxes every year in order for the country to develop. The government uses the taxes to improve public infrastructure, provide health care services to the public, and develop rural areas.

In full payment of their taxes, every individual and company will benefit from permitting the government to establish profitable schemes and infrastructure. This article states the various sources in which the government spends the money collected by the people on the welfare and development of the country. I hope this article on What was the Use of Money Collected from Taxes is helpful for all the readers.