Question

Which of the following is NOT a part of the capital receipts?

• A. Tax revenue
• B. Recovery of loan
• C. Disinvestment
• D. Borrowing

Answer 1

Answer:

A. Tax revenue

Understanding Capital Receipts vs. Revenue Receipts

In public finance, government revenues are broadly classified into two main categories: Capital Receipts and Revenue Receipts. This distinction is crucial for understanding the government's financial health and its impact on the economy.

Capital Receipts

• Definition: Capital receipts are those receipts of the government that either create liability or cause reduction in assets. They are non-recurring in nature and do not form part of the day-to-day operations of the government.

• Examples: Key examples of capital receipts include:

  • Loans raised by the government: Both domestic and foreign borrowings increase liabilities.

  • Recovery of loans: When the government gets back loans it has given, it reduces its assets.

  • Disinvestment: Sale of shares in Public Sector Undertakings (PSUs) leads to a reduction in government assets.

  • Small Savings: Collections from schemes like Public Provident Fund (PPF) are considered capital receipts as they represent borrowings.

• Impact: Capital receipts are important for financing development projects and managing fiscal deficits, but they also increase the government's debt burden.

Revenue Receipts

• Definition: Revenue receipts are those receipts of the government that neither create liability nor reduce assets. They are recurring in nature and form the regular income of the government.

• Components: Revenue receipts consist of two main types:

  • Tax Revenue: This is the primary source of income for the government. It includes taxes levied on income (like income tax, corporate tax), expenditure (like GST, excise duty, customs duty), property, etc.

  • Non-Tax Revenue: This includes income from sources other than taxes, such as interest receipts, dividends from PSUs, profits of the Reserve Bank of India, fees, fines, and grants received from foreign governments.

• Impact: Revenue receipts are essential for funding the government's regular expenditure, such as salaries, pensions, subsidies, and interest payments. A healthy revenue stream is vital for maintaining stable public services.