Capital receipts are receipts that either create liability or results in a reduction of a government asset. They are irregular and nonrecurring in nature. On the other hand, revenue receipts are receipts that neither create any liability nor reduce an asset. They are regular and reoccurring in nature
|Basis||Capital Receipts||Revenue Receipts|
|Difference||Receipts that either creates liability or results in a reduction of a government asset.||Receipts that neither creates any liability nor reduces an asset.|
|Nature||They are irregular and nonrecurring in nature.||They are regular and reoccurring in nature|
|Classification||Classified in the recovery of loans and advances, borrowings, disinvestment receipts and small savings.||Classified in tax and non-tax revenue. Tax revenue is further classified in direct tax and indirect tax which has further divisions.|
What is Capital Receipt?
Any receipt that either creates liability or leads to a reduction in the asset of the government is known as capital receipt. Now let us suppose that the government has received some receipt, some money, which it has borrowed from somewhere. In such a situation the government has the liability to pay that back. So here it is creating a liability of the government to pay that back.
In the other case let us suppose that the government has some asset which it sells off. Now from that, it has made some money so that money leads to the reduction in the asset of the government because that money is no more with the government, this will also go in the capital receipt.
Capital receipts are non-recurring and non-routine in nature. There is no fixed interval at which capital receipts are received.
Different types of capital receipts are; Recovery of Loans and Advances, where the central government gives loans and advances to the state government and union territories, to the foreign government and public sector enterprises. So whenever they get their loans and advances back, it is a capital receipt as it leads to the reduction in the assets of the government. Next item under capital receipt is the Borrowings of the government. Whenever the government doesn’t have enough funds to meet its expenditure the government borrows from the open market, RBI or from a foreign government and international institutions. So these borrowings but the liability on the government to pay these back, hence it comes under the capital receipt. The next one is Disinvestment Receipts; in disinvestment, the government sells off it’s sharing to public sector enterprises and from that, it gets some payment, some receipts. So this receipt comes under the capital receipts as the assets of the company in the form of public sector undertaking it gets reduced. Then there is Small Savings where funds are raised by the public in the form of small savings schemes like post office accounts, national saving certificates, public provident funds etc. So under these small saving schemes funds are raised and the government receives the money in the form of capital receipts. It gives the liability to the government to pay these funds back along with some interest. In some of the schemes, the government also contributes
What is a Revenue Receipt?
Opposite to the capital receipt is the revenue receipt which is the receipt that neither creates any liability nor reduces the asset of the government. So all those receipts which do not have any liability to pay it back come under the revenue receipt. Also, those with does not reduce the asset of the government will come under revenue receipt. So basically they are the regular sources of revenue of the government and they are reoccurring in nature.
The items under revenue receipt are tax revenue and non-tax revenue. So all the revenue that the government realizes from the taxes comes under the tax revenue and other than that comes under non-tax revenue. Tax revenue is further classified into two parts; revenue from direct tax and revenue from indirect tax.
Direct taxes are those taxes that are imposed by the government on the income and the property of an individual or a company and this tax cannot be transferred from one entity to another but one has to pay it directly to the government. Against this indirect taxes can be shifted from one entity to another and this one is imposed on the consumption expenditure, which is whenever somebody buys or consumes some goods or services. It can be transferred from the seller to the consumer and others in the supply chain.
Under direct tax we have:
- Income Tax
- Corporate Tax
- Wealth Tax
- Capital gain Tax
Thus, these are all the taxes that are levied on the property and the income of the individual.
Whereas for indirect tax we have all the taxes that are levied on the consumption of goods and services so under indirect tax we have only the GST (Goods and Services Tax) which is a single unified tax for the indirect taxes in the country. Earlier we used to have a number of indirect taxes like exercise duty, value-added tax, sound duty etc.
So all these tax provide revenue receipts for the government. These are all one-way transaction or one-way receipt for the government and the government has no liability or no need to pay it back.
Also we will note that corporate tax has a major share in the total tax that the government collects. In fact, a corporate tax and income tax constitutes one-third of the government earnings.
All revenues apart from tax revenues come under the non-tax revenue. The first item under it is Interest Receipts that are when the government gives loans to the state government and union territories or foreign government or to the public sector companies. The interest that it earns from those loans comes under the Interest receipts. Next one is the Profits and the Dividends that the government earns from the public sector enterprises and other such investments. Next item is the Fees; these are the charges that the government imposes when it is providing some services for the people, for example, the registration fees for vehicle license or land or the court fees. Then we have the License Fee, these are the fee when the government provides the right to explore a particular area for a particular period of time. Another item is Fine and Penalties; these are imposed whenever the rules and regulations of the government is broken. Last is Gift and Grants which the government receives from international institutions or foreign government.
Hence, all these revenues are one-way transactions and the government has any liability to pay it back nor does it result in any loss of revenue.
Key Differences between Capital Receipts and Revenue Receipts
- Any receipt that either creates a liability of the government is under capital receipt. Opposite to the capital receipt is the revenue receipt which is the receipt that doesn’t create any liability. So all those receipts which do not have any liability to pay it back come under the revenue receipt
- Capital receipt leads to a reduction in the asset of the government. Whereas when the assets of government are not reduced we get revenue receipts.
- Revenue receipts are the regular sources of revenue of the government but the capital receipts are irregular sources of revenue.
- Capital receipts are non-reoccurring in nature however revenue receipts are reoccurring in nature.
Broadly budget has two parts; expenditure side and receipt side. The expenditure is classified into two components; the capital expenditure and the revenue expenditure. Similarly, receipts have two components; the capital receipt and the revenue receipt. Budget receipts give its estimated money income that a government will receive from all its sources in a given financial year.
So we have seen broadly the items under revenue receipts and capital receipts which are budgetary terms. The central government makes the budget of a country for a financial year which plays a very important role in the fiscal policy of the government.