Understanding budget receipts and the role they play in govt finances

Capital receipts are non-recurring and either create a liability for the govt or deplete its assets; revenue receipts are recurring and do not entail any risk for the govt

Budget receipts are the total amount expected to accrue to the government from different sources during a fiscal year. The Budget document presents an itemised listing of the income (tax and non-tax revenues), and capital receipts of the Central Government.

In other words, budget receipts are the inflows that the government can use to incur expenditure for the nation.

Budget receipts, just like budget expenditure, are listed under the Annual Financial Statement. They are classified into two types: capital receipts and revenue receipts.

Capital receipts

Receipts that either create a liability for the government or cause a decline in its assets are known as capital receipts.

For example, if the government borrows from an external source, it generates a liability that will have to eventually be repaid, and is hence a capital receipt. Likewise, when the government sells its stake in a public sector undertaking (PSU) or 'disinvests', it diminishes its assets. The inflow on account of such a sale is a capital receipt too.

Other examples of capital receipts are the loans that the government raises from the public (market loans), the Reserve Bank, and foreign bodies and governments.

Capital receipts are "non-routine" in nature, and either become a burden or deplete the government's assets.

Notably, all capital receipts are tax-free, unless there is a provision to the contrary.

Capital receipts can further be classified into debt and non-debt receipts.

Debt receipts are the ones which the government is obligated to repay, such as external debt, short-term bank debt, treasury bills, market loans, and issuance of special securities to public-sector banks among others. Debt receipts form the majority of the government's capital receipts.

Non-debt receipts are those that the government does not have to repay. Recovery of loans, disinvestment, and issuance of bonus shares are some examples of non-debt capital receipts.  

Revenue receipts

Revenue receipts, unlike capital receipts, do not generate any liabilities or result in a claim against the government. These are non-redeemable receipts and are of a regular and recurring nature. The government usually receives revenue receipts as part of its usual operations.

Simply put, receipts that neither generate any risk or liability for the government, nor deplete its asset, are revenue receipts.

Taxes, grants, profits from state enterprises and sources of current income form part of the government's revenue receipts.

Revenue receipts can be further classified into tax revenue and non-tax revenue.

Tax revenue

Tax is a legal obligation that individuals and businesses have towards the government.

These payments are made without any direct benefit in return and are imposed by the government. They are a principal source of government funding.

The most common taxes are income tax, GST, sales tax, service tax, excise duty, and customs duty.

Non-tax revenue

Non-tax revenue is recurrent income earned by the government from sources other than taxes.

Interest received by the government, fees received by the central power authority, fees, penalties and fines, escheats (accrual of unclaimed property or funds), forfeitures, dividends paid by companies in which the government has a stake and communication services fees are examples of non-tax revenues.