Many people wonder – the tax money is used to fund which of the activities of the government? While paying taxes* is mandatory in India, being a taxpayer, you have the right to know how the government spends your hard-earned tax* money. Tax* is one of the biggest sources of government revenue. In this article, we will discuss what happens to the taxpayer’s money in India.
 

Sources of Revenue for the Government
 

The major sources of government revenue are:
 

• Personal Income Tax
• Corporate Tax
• Goods and Services Tax^@
• Excise Duty
• Customs Duty
   

How Does the Government Spend the Taxpayer’s Money?
 

Every year, the government declares an annual union budget, detailing how it plans to spend the tax contribution to the government. Here is a look at the categories in which the government spends taxpayer’s money:
 

• Interest payments
  
  The government spends a substantial portion of its revenues on paying interest on its debts. The government takes loans to manage expenses and need to pay interest on these loans. So, a big part of taxpayers’ money is spent on interest payments.
  
  
• Defence expenditure
  
  India is a vast country, and the government needs to ensure the security of its borders. This involves a lot of defence and security-related expenses, including:
  
  
  • Managing the daily expenses of the armed forces
  • Paying salaries and expanding the force
  • Acquiring weapons (imports) and modernising existing weapons, etc
  
  
  Around 11-11.5% of the annual union budget is allocated to the expenses associated with our defence services.

• Government-sponsored schemes
  
  The Central and State Governments sponsor hundreds of social security and social welfare schemes. These schemes are designed for the welfare of various segments of society. Some popular government welfare schemes are Pradhan Mantri Jan Dhan Yojana (PMJDY), Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Mudra Yojana (PMMY), Rashtriya Gokul Mission, Atal Pension Yojana, Kisan Vikas Patra, etc. The government needs to spend to manage these schemes and extend the benefits to citizens.
  
  
• Subsidies
  
  The government offers different types of subsidies or financial grants to supplement or stimulate certain economic activity, induce higher consumption, offset imperfections of the market, and achieve social policy objectives.
  
  Subsidies are offered to producers and consumers as per merit, income group, or social group of citizens. Subsidies are distributed as cash, tax* concessions, direct purchase, stock purchase, etc. Providing goods and services below cost, the government uses taxpayers’ money.
  
  
• Salary and pension payments of government employees
  
  The government employs thousands of people across various functions. It needs to pay salaries to the existing employees and pensions to retired employees too. In fact, the government spends around 6.42% of its income on pension payments.
  
  The central government also transfers around 8% as grants to states and union territories for management and development.
   

How Much Tax Are You Paying?

  

Citizens must ensure that they are aware of the tax* rates applicable to them. The government also offers a range of options to help people reduce their tax* liability. These include:
 

• Investment in Public Provident Fund, Employee Provident Fund, National Pension Scheme, tax*-saving fixed deposits, Post Office senior citizens savings scheme, etc.;
• Premium paid for life insurance policies for self, spouse, and children.
• The contribution made to the annuity plan of Life Insurance India;
• The contribution made to the Atal Pension Yojana.
• Premium paid for a health insurance policy.
• Amount spend on medical treatments of dependents; and many more
   

When you save in life insurance policies, you can avail of a tax deduction of up to ₹1.5 Lakh and create a financial safety net for your family when you are not around. There are many providers offering life insurance in India and a range of life insurance policies to choose from. You can go through Tata AIA Life Insurance Plans and choose the one that is best suited to your needs.
 

Conclusion
 

The development of a country depends on the funds available to the government to run and manage various welfare schemes and create the infrastructure needed for the same. As taxes are the primary source of income for the government, every citizen who earns income must pay income tax*.
 

With better infrastructure, improved healthcare services, and rural development, all citizens and businesses stand to benefit. There are many options to reduce tax* liability, like life insurance policies. Make sure that you calculate your tax* liability, pay taxes, and file returns within time.
 

L&C/Advt/2022/Oct/2487