Finance Bill or Finance Act
Finance Bill is a secret bill introduced every year in Lok Sabha (Lower chamber of the Parliament) immediately after the presentation of the Union Budget, to give effect to the financial proposals of the Government of India for the immediately following financial year. Rule 219 of the Rules of Procedure of Lok Sabha defines a Finance Bill to also include a Bill that gives effect to supplementary (additional) financial proposals for any period.
The Finance Bill is presented at the time of presentation of the Annual Financial Statement before Parliament, in fulfillment of the requirement of Article 110 (1)(a) of the Constitution, detailing the imposition, abolition, remission, alteration or regulation of taxes proposed in the Budget. It is through the Finance Act that amendments are made to the various Acts like Income Tax Act 1961, Customs Act 1962 etc.
In short, Finance Bill can be considered as an umbrella Act. However, being an Act of the Parliament, the various chapters of Finance Act independently also exist and is hence enforceable. For instance, a Commodity Transaction Tax was imposed through Chapter VII of the Finance Act of the year 2013. Similarly the service tax was introduced through Chapter V of the Finance Act of 1994.
When the proposals are introduced to the Parliament it is called as a Finance Bill. Once it is passed by the Parliament and assented to by the President, Finance Bill becomes the Finance Act for that year. (For instance, Union Budget 2015-16 for the Financial Year starting from April 2015 to March 2016, would be presented in February 2015 and would be accompanied by Finance Act, 2015 indicating the year (2015) in which the Act is passed.)
Finance Bills for various years may be seen at the site http://indiabudget.nic.in/ and the Finance Acts of various years may be seen here.
The different clauses in the Finance Act may get notified eventually, but at different times based on the readiness of the stakeholders and implementing agencies.
To facilitate understanding of the taxation proposals contained in the Finance Bill, the provisions and their implications are explained in the document titled Memorandum Explaining the Provisions of the Finance Bill.
In election years there would usually be two Finance Bills – one by the outgoing Government presented alongwith its interim budget or votes on account and another by the new Government which is titled as Finance Bill (No. 2) of that year.
Finance Bill Vs Appropriation Bill
While the Finance Bill generally seeks approval of the Parliament for raising resources through taxes, cess etc., an Appropriation Bill seeks Parliament's approval for the withdrawal from the Consolidated Fund of India to meet the approved expenditures of the Government. For more details on Appropriation Bill see here.
Both Finance Bill and Appropriation Bill are money bills.
Finance Bill Vs Money Bill
A Finance Bill is a Money Bill but not all money bills are Finance Bills. Under Article 110(1) of the Constitution a money bill is defined as follows…
110(1)…a Bill is deemed to be a Money Bill if it contains only provisions dealing with all or any of the following matters, namely:
(a) the imposition, abolition, remission, alteration or regulation of any tax;
(b) the regulation of the borrowing of money or the giving of any guarantee by the Government of India, or the amendment of the law with respect to any financial obligations undertaken or to be undertaken by the Government of India;
(c) the custody of the Consolidated Fund or the Contingency Fund of India, the payment of moneys into or the withdrawal of moneys from any such fund;
(d) the appropriation of moneys out of the Consolidated Fund of India;
(e) the declaring of any expenditure to be expenditure charged on the Consolidated Fund of India or the increasing of the amount of any such expenditure;
(f) the receipt of money on account of the Consolidated Fund of India or the public account of India or the custody or issue of such money or the audit of the accounts of the Union or of a State; or
(g) any matter incidental to any of the matters specified in sub-clauses (a) to (f).
(2.) A Bill is not deemed to be Money Bill by reason only that it provides for the imposition of fines or other pecuniary penalties, or for the demand or payment of fees for licences or fees for services rendered, or by reason that it provides for the imposition, abolition, remission, alteration or regulation of any tax by any local authority or body for local purposes….
Finance Bill is generally limited to Article 110(1)(a) & (g) - the imposition, abolition, remission, alteration or regulation of any tax and any matter incidental thereto.
More about money bills may be seen in the Legislative Procedures of Lok Sabha and Rajya Sabha.
Features of Money Bills (including a Finance Bill)
Essentially Money bill including a Finance Bill has the following features:
- It can be introduced only in the Lok Sabha (lower chamber of the Parliament)
- The bill is placed in Rajya Sabha (Upper chamber of the Parliament) thereafter and Rajya Sabha can return the Bill with or without its recommendations.
- In any case, the Bill has to be returned within a period of 14 days from the date of its receipt by Rajya Sabha. Otherwise it is deemed to have been passed by both Houses at the expiration of the said period in the form in which it was passed by Lok Sabha.
- If the bill is returned to Lok Sabha without recommendation, a message to that effect is reported by the Secretary-General to the Lok Sabha if in session, or published in the Bulletin for the information of the members of the Parliament, if it is not in session. The Bill shall then be presented to the President for his assent.
- If the bill is returned to the Lok Sabha with amendments it has to be laid on the Table of the House and taken up for consideration.
- However, Lok Sabha is not bound to accept these amendments. Lok Sabha, under Article 109 of the Constitution, has the option to accept or reject all or any of the recommendations made by Rajya Sabha. In any case, Lok Sabha has to inform Rajya Sabha about the status of their recommendations, as to whether they have been accepted or not. It is not that Lok Sabha does not accept any of the recommendations of Rajya Sabha. For instance, in the Income Tax Bill, 1961, Rajya Sabha did recommend a number of amendments of substantial character, all of which were agreed to by Lok Sabha.[1]
- If Lok Sabha accepts any amendments as recommended by the Rajya Sabha, the Bill shall be deemed to have been passed by both the Houses of the Parliament ‘with the amendments recommended by the Rajya Sabha and accepted by the Lok Sabha’ and a message to that effect has to be sent to the Rajya Sabha.
- If Lok Sabha does not accept the recommendations of the Rajya Sabha, the Bill shall be deemed to have been passed by both the Houses in the form in which it ‘was passed by the Lok Sabha without any of the amendments recommended by the Rajya Sabha’.
- In all other bills final passing of the bill happens at Rajya Sabha. In case of money bills, final passing happens at Lok Sabha and then it is sent to the President for his assent.
- Unlike other bills, the President cannot return the Money Bill with his recommendations to the Lok Sabha for reconsideration.
A defeat of Money bill in Lok Sabha is deemed political/parliamentary defeat of the government of the day. Speaker has unquestionable powers to decide if a Bill is a Money Bill or not. It cannot be questioned in any court. Rajya Sabha (Upper chamber of the Parliament)’s dissent on a Money Bill is of no political significance, as the Lok Sabha has overriding powers on Money Bills. Finance Bill or any money bill cannot be referred to even joint Committees of the two Houses of the Parliament (to resolve differences between the two Houses), as is in the case of other bills. The Standing Committee of the Parliament also cannot scrutinize a Money Bill.
A Finance bill, being a money bill is normally passed without much debate as against the usual procedurally lengthy and informed debates for other bills inside Parliament, and outside in standing committees or among the experts and stake-holders and in the media. Hence, Finance Bill route is generally not adopted to introduce important policy amendments with far reaching consequences, for which usually a separate bill is preferred.
Can Finance Bill contain non-tax proposals?
Finance Bill/Act normally deals with income tax, customs, service tax, central excise, cess and related aspects and is intended to help implement the Budget. Of late, Finance Bills are also used to introduce one or two amendments in certain Acts such as UTI Act or FRBM Act, Securities Contracts Regulation Act, Forward Contracts Regulation Act, Foreign Exchange Management Act, Prevention of Money Laundering Act, etc. Such amendments are usually presented under the Miscellaneous Chapter of the Finance Bill.
Finance Bill, 2015 came under criticism for incorporation of many policy amendments (like setting up of a Public Debt Management Agency, Repeal of Government Securities Act, Amendments to RBI Act etc to shift regulatory jurisdiction over various segments of the financial markets ) which did not technically qualify to be in the Finance Bill. Many members of the Parliament demanded that the bill be withdrawn and a new bill be introduced. Some argued that the inclusion of non-taxation proposals in the Finance Bill, which is a Money Bill, would curtail the power of Rajya Sabha to amend those provisions. Consequent to this, Government withdrew some of those controversial policy amendments from the Finance Bill, 2015[2]. The debate in Lok Sabha on 30 April 2015 and the Ruling of the Speaker in this regard may be seen.
Hon’ble Speaker clarified that as per Rule 219 of the Rules of Procedure of Lok Sabha, the primary object of a Finance Bill is to give effect to the financial proposals of the Government. At the same time, this Rule does not rule out the possibility of inclusion of non-taxation proposals. Therefore, a Finance Bill may contain non-taxation proposals also. But the fact is that a well-established practice of Lok Sabha has been not to include non-taxation proposals in not only a Finance Bill but also other Bills containing taxation proposals unless it is imperative to include such proposals on constitutional or legal grounds. Therefore, Speaker ruled that every effort should be made to separate taxation measures from other matters unless it is impossible on constitutional or legal grounds or some such unavoidable reasons, to do so in a particular case.
Finance Bill Vs Financial Bill
Finance Bill is different from a “Financial Bill” which is defined under article 117(1) of the Constitution. Money bills including Finance Bills are a subset of “Financial Bills”.
Whereas a Money Bill deals solely with matters specified in article 110(1) (a) to (g) of the Constitution, a Financial Bill does not exclusively deal with all or any of the matters specified in the said article. It may contain some other provisions also.
Financial Bills can be divided into two categories.
- In the first category are Bills which contain provisions attracting article 110(1)(a) to (f) of the Constitution. They are categorized as Financial Bills under article 117(1) of the Constitution. It is a Bill which has characteristics both of a Money Bill and an ordinary Bill. As in the case of a Money Bill, firstly, it cannot be introduced in Rajya Sabha, and secondly, it cannot be introduced except on the recommendations of the President. Except these two points of difference, a Financial Bill in all other respects is just like any other ordinary Bill. That is other restrictions in regard to Money Bills do not apply to this category of Bills. Financial Bill under article 117(1) of the Constitution can be referred to a Joint Committee of the Houses.
- In the second category are those Bills which contain provisions which on enactment would involve expenditure from the Consolidated Fund of India. Such Bills are categorised as Financial Bills under article 117 (3) of the Constitution. Such Bills can be introduced in either House of Parliament. However, recommendation of the President is essential for consideration of these Bills by either House and unless such recommendation is received, neither House can pass the Bill. Such Bills are more in the nature of ordinary Bills rather than the Money Bills and Financial Bills mentioned earlier. The only point of difference between this category of Financial Bills and the ordinary Bills is that such a Financial Bill, if enacted and brought into operation, involves expenditure from the Consolidated Fund of India and cannot be passed by either House of Parliament unless the President has recommended to that House the consideration of the Bill. In all other respects this category of Bills is, just like ordinary Bills, so that such a Financial Bill can be introduced in Rajya Sabha, amended by it or a joint sitting can be held in case of disagreement between the Houses over such a Bill. There is, in other words, no limitation on the power of Rajya Sabha in respect of such Financial Bills.
Contributed by
- Ms. Rose Mary K Abraham (IES 2006) with inputs from Mr. P R Devi Prasad (IES 1982)
- Email- rosemary.a@nic.in, d.prasad@nic.in