Budget Receipts
Budget receipts refer to the estimated money receipts of the government from all sources during a given fiscal year. Budget receipts may be further classified as:
• Revenue receipts and
• Capital receipts.
Revenue Receipts:
Revenue receipts refer to those receipts which neither create any liability nor cause any reduction in the assets of the government. They are regular and recurring in nature and government receives them in its normal course of activities.
A receipt is a revenue receipt, if it satisfies the following two essential conditions:
1. The receipt must not create a liability for the government. For example, taxes levied by the government are revenue receipts as they do not create any liability.
2. The receipt must not cause decrease in the assets. For example, disinvestment is not a revenue receipt as it leads to a reduction in assets of the government.
Revenue receipts of the government are generally classified under two heads:
i. Tax Revenue
ii. Non-Tax Revenue
Tax Revenue
Tax revenue refers to sum total of receipts from taxes and other duties imposed by the government. Tax is a compulsory payment made by people and companies to the government without reference to any direct benefit in return.
It includes both direct and indirect taxes. For more details on taxation, refer the chapter on taxation.
Non-Tax revenue
Non-Tax revenue refers to receipts of the government from all sources other than those of tax receipts. The main sources of non-tax revenue are:
1. Interest: Government receives interest on loans given by it to state governments, union territories, private enterprises and general public. Interest receipts from these loans are an important source of non-tax revenue.
2. Profits and Dividends: Government earns profit through public sector undertakings like Indian railways, LIC, BHEL, etc. It earns profit from the sale proceeds of the products of such public enterprises. Government also gets dividend from its investments in other companies.
3. Fees: Fees refer to charges imposed by the government to cover the cost of recurring services provided by it. Such services are generally in public interest and fees is paid by those, who receive such services. It is also a compulsory contribution like tax. Court fees, registration fees, import fees, etc. are some examples of fees.
4. License Fee: It is a payment charged by the government to grant permission for something. For example, license fee paid for permission of keeping a gun or to obtain National Permit for commercial vehicles.
5. Fines and Penalties: They refer to those payments which are imposed on law breakers. For example, fine for jumping red light or penalty for non-payment of tax. Fines are different from taxes as the former is levied to maintain law and order, whereas, the latter is imposed to generate revenue.
6. Escheats: It refers to claim of the government on the property of a person who dies without leaving behind any legal heir or a will.
7. Gifts and Grants: Government receives gifts and grants from foreign governments and international organisations. Sometimes, individuals and companies also voluntarily gift money to the government. Such gifts are not a fixed source of revenue and are generally received during national crisis such as war, flood, etc.
8. Forfeitures: These are in the form of penalties which are imposed by the courts for non-compliance of orders or non-fulfillment of contracts etc.
9. Special Assessment: It refers to the payment made by owners of those properties whose value has appreciated due to developmental activities of the government. For example, if value of a property near a Metro Station has increased, then a part of developmental expenditure is recovered from owners of such property in the form of special assessment.
Capital Receipts
Capital receipts refer to those receipts which either create a liability or cause a reduction in the assets of the government. They are non-recurring and non-routine in nature.
Capital receipts create a liability for the government. For example, Borrowings are capital receipts as they lead to an increase in the liability of the government.Also, receipts from sale of shares of public enterprise are capital receipts as they lead to reduction in assets of the government.
Broad classification of capital receipts is as follows:
1. Borrowings: Borrowings are the funds raised by government to meet excess expenditure. Various sources for Government borrowings are: Governments borrow funds from: Open Market (Public), Reserve Bank of India (RBI), Foreign governments (like loans from USA, England etc.) and International institutions (like World Bank, International Monetary Fund). Funded securities, special securities(oil and fertiliser bonds)
2. Recovery of Loans: Government grants various loans to state governments or union territories. Recovery of such loans is a capital receipt as it reduces the assets of the government.
3. Disinvestment: Disinvestment refers to the act of selling a part or the whole of shares of selected public sector undertakings (PSU) held by the government. They are termed as capital receipts as they reduce the assets of the government. Government holds ownership in various PSU’s in the form of equity shares.
4. Small Savings: Small savings refer to funds raised from the public in the form of Post Office deposits, National Saving Certificates, Kisan Vikas Patras etc. They are treated as capital receipts as they lead to an increase in liability.
Expenditure
As the receipts, expenditure too is classified as revenue and capital expenditure.
Revenue Expenditure
Revenue Expenditure includes expenditure that is incurred to meet day to day and regular needs of the government. The basic trait of revenue expenditure is that it doesn’t create any returns or revenue. Consider the following examples of revenue expenditure
• Interest paid on borrowings and other liabilities
• Expenditure towards law and order i.e., Defence and Police
• Grants to states and UTs
• Pensions and salaries
• Welfare expenditure such as subsidies, public health, education and broadcasting*
• Grants-in-aid to foreign governments
Capital Expenditure
Expenditure that creates permanent assets in general and yield periodical income is classified as Capital Expenditure. Besides, loans given to states and local bodies fall under this head. It is not essential that concrete assets created under capital expenditure should be revenue producing.
