Question

Using suitable examples, distinguish between Revenue Receipts and Capital Receipts.

Hint:

Revenue receipts neither create a liability nor reduce an asset (example: taxes). Capital receipts either create a liability or reduce an asset (example: proceeds from disinvestment).

Answer 1

Step 1: Understanding the Concept:
Every government earns money from many sources. These receipts are split into two groups by one test: does the receipt create a liability or reduce an asset of the government?
This question asks us to state the difference between the two groups and give an example of each.

Step 2: Revenue Receipts.
Revenue receipts are the receipts of the government that neither create a liability nor reduce an asset of the government.
The government gets this money and owes nothing back for it. Its assets also stay as they were.
Example: Taxes received by the government, such as income tax or GST.

Step 3: Capital Receipts.
Capital receipts are the receipts of the government that either create a liability or reduce an asset of the government.
When the government borrows, it must repay the amount later, so a liability is created. When it sells a public sector share, it gives up an asset.
Example: Proceeds from disinvestment (sale of shares of public sector companies). Borrowings from the public are another example.

Step 4: Compare the two.

Basis	Revenue Receipts	Capital Receipts
Liability	Do not create any liability	Create a liability, or reduce an asset
Assets	Do not reduce any asset	May reduce an asset (for example, sale of shares)
Example	Tax receipts	Proceeds from disinvestment

Final Answer:
Revenue receipts neither raise a liability nor cut an asset (example: taxes). Capital receipts either raise a liability or cut an asset (example: proceeds from disinvestment).