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Budget Classification

Budget Classification

Budget Classification – Different types of budgets have been developed keeping in view the different purposes they serve. Some of the important classifications of the budgets are discussed below.

Budgets can be classified as following:

  • activity-based budget
  • add-on budget
  • bracket budget
  • continuous (rolling) budget
  • incremental budget
  • strategic budget
  • stretch budget
  • supplemental budget, and
  • target budget

Penalty proposed in Budget u/s 271J on CAs: Valid or invalid?

After the presentation of the new Budget  on 1st February, 2017 by the Finance Minister of India, Shri Arun Jaitley. Every CA professional is discussing the Penalty proposed by him on the Chartered Accountants u/s 271J of the Finance Bill,2017. Here’s the extract from the notes of the Finance Bill, 2017.

“Clause 86 of the Bill seeks to insert a new Section 271J in the Income-tax Act relating to penalty for furnishing incorrect information in reports or certificates.

It is proposed to provide that if an accountant or a merchant banker or a registered valuer furnishes incorrect information in a report or certificate under any provisions of the Act or the rules made thereunder, the Assessing Officer or the Commissioner (Appeals), without prejudice to the provisions of the Income-tax Act, may direct him to pay, by way of penalty, a sum of ten thousand rupees for each such report or certificate. It is also proposed to define the expressions of “accountant”, “merchant banker” and “registered valuer”.

Clause 87 of the Bill seeks to amend Section 273B  in the Income-tax Act relating to the penalty not to be imposed in certain cases.

It is proposed that penalty shall not be imposable in respect of the proposed section 271J also if the person proves that there was reasonable cause for the failure referred to in the said section.

This amendment is consequential in nature.  This amendment will take effect from 1st April, 2017.”

Some Chartered accountants are against this section. Their point of view is that ICAI’s code of conduct is strong enough to handle the erring members. The imposition of this penalty will give undue power to the officers of the Income tax department. This will lead to harassment of CAs. The officers will misuse this power and will create unnecessary problems for the CAs. Therefore, CAs should protest this section.

While some CAs think that imposition of penalty is not completely wrong and there’s nothing scary about it. If a CA proves the genuineness of the documents or reports certified by him/her and is sure about the correctness of the information furnished, then the Income Tax department can’t impose any penalty u/s 271J. Further, according to Section 273B, penalty shall not be imposable if the person proves that there was reasonable cause for the failure (if any). So, why to go against it? And, protesting can create an impression that CAs support such wrong things. Apart from this, the power may be shifted from CAs to other professionals in case of protest.

I personally believe that there’s nothing wrong in this provision. The Income tax department can’t exercise any wrong power in case the genuineness is proved. In fact, this will surely improve reporting and no one will certify the reports or other documents in a negligible manner.



Budget classification

Activity-based budget is the budget for the costs of individual activities. In activity-based budgeting, all costs are allocated to cost centers and then are assigned to activities. Products or customers are allocated the costs based on the amount of activity they consume. Activity-based budgets ensure cost reduction and performance improvement. As activity-based budgeting requires a new budgeting model, it requires careful planning and implementation.

Add-on budget is the budget based on the previous years’ budgets adjusted for current information. For example, add-on budgets can be adjusted for new levels of inflation, employee wage rates, or new requirements.

Bracket budget is the budget at higher and lower levels than the base estimate. Essentially bracket budgets are contingency expense plans for downside risks. For example, such budgets allow management to estimate an impact of decreased sales on earnings. In bracket budgeting, management identifies potential problems and acceptable profit. In this way, management can test different alternatives and improve planning process.

Continuous (rolling) budget is the budget revised on a regular basis. As the period ends, a new budget period is added. For example, the budget can be regularly extended for another month (or quarter) at the end of each month (or quarter). As the result, continuous budgets are based on the most recent information and ensure proper planning and performance. The drawback of continuous budgets is that they require continuous planning.

Incremental budget is the budget adjusted for incremental increases in terms of dollars or percentages. Historically incremental budgeting has been the most common budgeting method. It is based on the prior’s year expenditures. In incremental budgeting, each budget line receives the same increment (e.g., 10% percent) increase or decrease for the next budget cycle.  Projects can also be segregated in multiple increments, and each increment is then allocated labor and other resources to complete the project. Incremental budget are easy to prepare. However, they have multiple drawbacks. Incremental budgets are based on aggregate data. They might not match company’s targets. Incremental budgets can potentially cause over- or under funding of certain areas.

Strategic budget is the budget adjusted for strategic planning. Strategic budgets are used under conditions of uncertainty or instability. Strategic budgeting is the mixture between the top-down approach – when top management allocates resources – and the bottom-up approach – when lower management participates in resource allocation.

Stretch budget is the budget based on sales and marketing forecasts that are higher than estimates. Stretch budgets are not used for estimating expenditures; expenses are estimated at the budget target. Stretch budgets can be too subjective or complex.

Supplemental budget is the budget for an area that is not included in the main (base) budget.

Target budget is the budget that matches major expenditures to company’s goals.

Budget classification


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