Question

Distinguish between `Revenue Receipts' and `Capital Receipts' in a Government Budget.

Hint:

Simple test: Ask ``Does this receipt create a future obligation (liability) or sell off a government asset?'' If yes $\rightarrow$ Capital Receipt. If no $\rightarrow$ Revenue Receipt.

Answer 1

Step 1: Understanding the Concept:
Government receipts are the funds that flow into the government's treasury. They are broadly divided into Revenue Receipts and Capital Receipts based on their impact on assets and liabilities.

Step 2: Detailed Explanation:
Revenue Receipts: These are receipts that neither create a liability for the government nor lead to any reduction in assets. They are recurring in nature.
Examples: Tax Revenue (Income Tax, GST), Non-Tax Revenue (Fines, Fees, Dividends from PSUs).
Capital Receipts: These are receipts that either create a liability (e.g., Borrowings) or cause a reduction in assets of the government (e.g., Disinvestment -- sale of shares of PSUs).
Examples: Borrowings from RBI, market loans, recovery of loans given.
Key Difference: Revenue Receipts do not alter the government's asset-liability position; Capital Receipts do.

Step 3: Final Answer:
Revenue Receipts do not create liability or reduce assets; Capital Receipts either create liability or reduce assets of the government.