Topic 02 of 6 · Chapter 07 · Indian Economy
Revenue vs Capital — Receipts & Expenditure
Revenue receipts (tax + non-tax), capital receipts (borrowings, disinvestment), revenue expenditure vs capital expenditure.
📋 In This Article
1. Revenue vs Capital Receipts
| Feature | Revenue Receipts | Capital Receipts |
|---|---|---|
| Definition | Receipts that do NOT create liability or reduce assets | Receipts that create liability or reduce assets |
| Examples | Income tax, GST, customs duty, dividends from PSUs, fees | Borrowings (market loans, external loans), disinvestment proceeds, recovery of loans |
| Nature | Recurring; regular income | Non-recurring; one-time or irregular |
| Effect | No change in government’s assets or liabilities | Increases liabilities (borrowings) or reduces assets (disinvestment) |
⭐ Revenue Receipts = Tax Revenue + Non-Tax Revenue
• Tax Revenue: Income tax, corporate tax, GST, customs duty, excise duty
• Non-Tax Revenue: Dividends from PSUs, interest receipts, fees, fines, grants
• Tax Revenue: Income tax, corporate tax, GST, customs duty, excise duty
• Non-Tax Revenue: Dividends from PSUs, interest receipts, fees, fines, grants
2. Revenue vs Capital Expenditure
| Feature | Revenue Expenditure | Capital Expenditure |
|---|---|---|
| Definition | Expenditure that does NOT create assets or reduce liabilities | Expenditure that creates assets or reduces liabilities |
| Examples | Salaries, interest payments, subsidies, pensions, defence revenue | Infrastructure (roads, railways), loans to states, purchase of assets, defence capital |
| Nature | Recurring; routine spending | Non-recurring; investment spending |
| Effect on economy | Consumption; no long-term asset creation | Investment; creates long-term assets |
💡 Capital Expenditure = Investment: Capital expenditure creates assets that benefit the economy for years. Building a highway (capital expenditure) benefits the economy for 30+ years. Paying salaries (revenue expenditure) benefits only for that year. That’s why economists prefer higher capital expenditure.
3. Tax Revenue — Direct and Indirect
| Feature | Direct Tax | Indirect Tax |
|---|---|---|
| Definition | Tax paid directly by the person on whom it is levied | Tax collected by an intermediary (seller) and passed on to government |
| Examples | Income tax, corporate tax, wealth tax, capital gains tax | GST, customs duty, excise duty |
| Burden | Cannot be shifted to others | Can be shifted to consumers |
| Progressive? | Yes — higher income = higher tax rate | No — same rate for all |
| Administered by | CBDT (Central Board of Direct Taxes) | CBIC (Central Board of Indirect Taxes and Customs) |
4. Key Points for Exam
🔑 Must-Remember Facts
- Revenue receipts = Tax revenue + Non-tax revenue
- Capital receipts = Borrowings + Disinvestment + Recovery of loans
- Revenue expenditure = Salaries, interest, subsidies (no asset creation)
- Capital expenditure = Infrastructure, loans to states (asset creation)
- Direct taxes administered by: CBDT
- Indirect taxes administered by: CBIC
- Direct tax = cannot be shifted; Indirect tax = can be shifted to consumers
- Largest source of tax revenue: GST (indirect) and Income tax (direct)
- Disinvestment proceeds = capital receipt (not revenue receipt)
- Interest payments = revenue expenditure (largest component)