Revenue Receipts and Capital Receipts
The two categories of receipts we find in the context of public finance, particularly in the Indian governmental structure, are revenue receipts and capital receipts. Both play an important role in how the government generates revenue, mobilises funds for expenditure, and maintains the stability of the economy. While it may look like the two terms refer to the same phenomenon in the sphere of economic policy and budgeting, they are distinct. In this blog post, we will define both revenue and capital receipts and analyse how they are different, and why they are important, especially for Indian taxpayers, students, and professionals in the field of public finance. File your returns now with compliance.
What Are Revenue Receipts?
It is the money that comes to the government that does not lead to an accrual of any obligation or depletion of any wealth. These are recurring revenues that enable the government to carry out its operational expenses and activities.
Categories of Revenue Receipts
Tax Revenue:
These are obligatory payments that are made to the government. The rough classification of taxes in India is:
- Direct Taxes: Personal Income tax, Company tax, Wealth Tax (unfortunately was removed), and others.
- Indirect Taxes: Some of the major Indian indirect taxes include GST (Goods and Services Tax), Customs Duty, Excise Duty (largely integrated with GST), etc.
Non-Tax Revenue:
These are supplementary incomes as received through:
- The amount of interest on the loans has been granted by the government.
- Persons receiving dividends and profits from public sector undertakings (PSUs)
- Fees, fines, penalties
- Permits and fees (for example, spectrum sales at an auction).
Characteristics of Revenue Receipts
- Recurring in nature
- No repayment obligation
- Held to settle other expenditure, which includes salaries, subsidies, pensions, defence, and other welfare measures.
What Are Capital Receipts?
Capital receipts mean those receipts which either increase the liability or decrease the assets of the government, for example, borrowings and disinvestment. These are generally ‘irregular’ and are generally channelled towards capital-intensive activities such asthe construction of infrastructure or any other investment that is of a long-term nature.
Categories of Capital Receipts
- Debt Receipts (Borrowings):
These include:
- A loan in the market refers to an amount borrowed from the public by offering government securities.
- Foreign debts which this country incurred from multilateral organizations like the World Bank.
- Treasury Bills (short-term borrowings)
Non-Debt Receipts:
These do not generate a liability but take the quantity of assets out of the hands of the government:
- Disinvestment of PSUS
- Collection of loans advanced to states or PSUS
- Losses in terms of sales of government assets like land or property.
Characteristics of Capital Receipts
- Non-recurring in nature
- Used for asset creation
- Can involve long-term repayment obligations
Revenue Receipts vs. Capital Receipts: Key Differences
| Basis | Revenue Receipts | Capital Receipts |
| Nature | Recurring/Regular | Non-recurring |
| Impact on Liability | No impact on liabilities | Can increase government liabilities |
| Impact on Assets | No reduction in assets | No reduction in assets |
| Purpose | To meet routine expenditures | To meet long-term development or asset creation |
| Examples | Taxes, interest income, dividends | Borrowings, disinvestment, recovery of loans |
Real-World Examples
- When the government receives GST collections, it is a revenue receipt.
- When it sells partially a Liquified code: LIC or Bharat Petroleum, the money gained is known as disinvestment.
- If the government can recover the money it has given as loans to a state government or a public sector unit, this is also a capital receipt.
- Interest received on RBI deposits is one of the receipts under revenue receipts, which is part of non-tax revenue receipts.
Fiscal Deficit and Receipts
The capital-revenue receipts ratio also affects the country’s fiscal deficit, which is the difference between expenses and non-borrowed revenues.
Large capital receipts from disinvestment or from recovering loans also reduce the borrowing requirements of the Government.
A low level of revenue, on the other hand, is worrisome because when the government borrows, it does so to fund its expenditures and not investments.
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Revenue receipts and capital receipts are the two bulwarks that stand on the income side of the Indian government’s budget. While revenue receipts relate to the daily operations of a nation, capital receipts represent the building blocks towards future development of a country’s infrastructure.
