Classification of Budget Receipts:
The central government raises its revenue in the budget through a. Revenue Receipts and b. Capital Receipts
a. Revenue Receipts:
- Revenue receipts are those estimated receipts of the government during the fiscal year which do not affect the asset or liability status of the government.
- These are government receipts that do not lead to claim against the government therefore, they are called non – redeemable.
- Revenue receipts show the following characteristics i.e., a receipt will be considered as a revenue receipt if it fulfill the following two conditions:
1. If a receipt does nit result in any corresponding government liability, then it is a revenue receipt. Example, tax is a revenue receipt since there is no equivalent liability for the government, taxes are mandatory payment made to the government.
2. If a receipt does not result in any decline in government asset, then it is a revenue receipt. Example, tax is a revenue receipt, that does not reduce government assets. On the other hand, if the government makes money by selling its stake in a company, its assets are reduced. As a result, these are not considered revenue receipts.
- Revenue receipts can be broadly classified as:
1. Tax Revenue and 2. Non Tax Revenue
1. Tax Revenue:
- It included the total of tax proceeds and other duties imposed by the Central government.
- A tax is a compulsory charge or payment imposed by the government on individuals and corporations.
- The persons who are taxed have to pay these taxes, irrespective of any corresponding return of services or goods by the government.
- The basic difference between taxes and other sources of public revenue is the element of compulsion involved in taxes.
- The taxes are imposed legally i.e., according to the law of the land.
- There is no proportionate relationship between the tax and the related social benefits.
- Tax revenue can be further classified as:
a. Direct Taxes b. Indirect Taxes
a. Direct Taxes:
Direct taxes are imposed on the property and income of individuals and companies and are paid by them directly to the government.
These taxes have a direct impact on the income level and purchasing power of the people and also help in changing level of aggregate demand in the economy.
The liability to pay tax and the actual burden of the tax lie on the same individual, and can not shift the burden of paying taxes on others.
Direct taxes are – Income tax, Corporate tax, Capital Gain Tax, Death duty etc.
b. Indirect Taxes :
Indirect taxes are imposed on goods and services and have an impact on the income and property of individuals and companies through their consumption expenditure.
The liability to pay tax and actual burden of the tax lie on different person. It means that one can shift the burden of paying taxes on others.
Indirect taxes are – GST (Goods and Service Tax) .
- The central government in India imposes six main taxes, namely Personal Income Tax, Corporation Tax, Custom Duties, Union Excise Duties, Service Tax and Expenditure Tax.
1. Personal Income Tax:
Personal income tax is levied on the income of the individuals as well as joint Hindu family, arising from various sources like salaries, income from house property, income from business or profession etc. They are direct taxes.
2. Corporation Tax:
The corporation tax is a tax on the income (profit ) of the companies, operating in India. They are also direct tax.
3. Custom Duties:
Custom duties are taxes or duties imposed on commodities imported into the country ( import duties) or commodities exported from the country (export duties). They are indirect taxes.
4. Central Excise Duties:
These duties levied by the central government on commodities produced within the country. These duties are confined mostly to industrial products. They are indirect taxes.
5. Service Tax:
Service tax is levied on services provided by the people, such as services provided by hotels, restaurants, telephone services, specialised banking and financial services, post services etc. They are indirect tax.
6. GST (Goods and Service Tax) :
GST is a single, indirect tax on the supply of goods and services, right from the manufacturer to the consumer. GST is a comprehensive tax on manufacturer, sale and consumption of goods and services at the national level with a uniform structure of tax rates in the entire country. GST is a value added tax.
7. Interest Tax:
Interest tax is levied on the gross interest earned by the financial institutions such as commercial banks, financial companies etc.
b. Non Tax Revenue:
- The receipts of the government from all sources other than tax receipts are known as non tax revenue.
- They consist of interest receipts on the Central Government’s loan, dividend and investment profits made by government, fees and other receipts for services rendered by the government.
- Non – tax revenue includes cash and grant – in – aid received from foreign countries and various international organisations.
- Primary sources of non – tax revenue include :
1. Interest Receipts:
- Central government gives loans to state governments, union territories and government departments like railways, private enterprises and general public etc.
- Accordingly, it receives interest on the loan. Interest receipts are an essential sources of non tax revenue.
2. Dividends and Profits:
- The government makes a profit through the public sector enterprises like Indian Railways, BHEL, LIC, Air India, Nationalised Banks etc.
- It earns profit from the sale of the goods produced by these public enterprises.
- The government also receives a dividend from its investments in other businesses.
3. Fees:
- One of the primary sources of non tax receipts of the government is the fees charged by the government.
- The government imposes this fee to cover the cost of services provided by it.
- The government provides various services to the public and in return public makes payment to the government, which is called fees.
- Example, birth and death registration fees, land registration fees, court fees etc.
4. Fines and Penalties :
- These are those payments that are made by those who break the law.
- The main purpose is to force people to follow laws.
- It is determined by the government in an arbitrary manner, depending on the degree of the offence
- Example, a fine jumping a red light and a penalty for non – payment of tax.
5. Escheat:
It is the income of the government which occurs out of the property which does not have a legal heir. Such property’s income belongs to the government.
6. Special Assessment :
- It is the payment made by the owner of such properties whose value has. Increased as a result of the government’s development efforts.
- Example, property owner who own property close to a metro station are required to pay special assessment as a way of recovering some of the costs associated with development.
7. Gifts and Grants:
- Gifts and grants are voluntary contribution made by individuals, private organisation and foreign governments to the government for specific purposes.
- They are given to the government both domestically and abroad.
- This is a temporary source of revenue.
- It also includes grants – in – aid in cash from foreign countries and international organisations like World Bank.
- It is received during natural calamities like floods, earthquake and ear conditions.
8. Licence and Permit Fee :
- It is the fees levied by the government in exchange for granting permission for anything.
- Example, payment of a licence fee is required to own a weapon or to apply for a national licence for commercial vehicles.
9. Forfeitures :
The court imposes penalties for failure to comply with orders, non fulfilment of conditions of agreement or contract etc.
10. Income from the sale of Spectra like – 3G & 4G:
The significant source of non – tax receipts of the government includes the income from the sale of spectra.
2. Capital Receipts:
- When government raises funds, during a fiscal year, either by incurring a liability or by disposing of reducing asset, it is called capital receipt.
- These are non – recurring and not routine.
- Capital receipts show the following characteristics i.e., a receipt will be considered a capital receipt, if it fulfils the following two conditions:
1. If a receipt creates corresponding government liabilities then it is a capital receipt. For example, when government takes a loan, it creates a liability, it is to be paid back. As a result it is considered a capital receipt.
2. If a receipt results in a decline in the government’s assets then it is a capital receipts. For example, the proceeds from the sale of the government’s share cause a reduction in the assets of the government. As a result these are treated as capital receipts.
- Capital Receipt consists of:
a. Proceeds from disinvestment, i.e., when the government sells shares of public sector enterprises to the private sector.
b. Government borrowings from within the country and abroad.
c. Loan recovery from state government and other debtors.
Sources of Capital Receipts:
1. Recovery of Loans:
The central government provides loans to state government or union territories to address financial difficulties.
The debtors are the assets of the government. As these loans or debts are recovered, these assets of the government reduces. Thus they are categorised as capital receipts. It is non – debt creating capital Receipt.
2. Borrowings:
While lending creates assets, borrowing creates liability for the government. The money raised by the government to meet excess expenditure is referred to as borrowing. Therefore, borrowings must be considered capital receipts. It is debt creating capital receipt.
The government borrows from:
- The public in general ( which is known as market borrowing)
- The Reserve Bank of India
- Foreign governments, like loans from the USA, UK etc.
- International organisations like World Bank and IMF.
3. Special Deposits:
These relate investment with the government by non government provident funds, gratuity funds, funds of LIC, etc.
4. Small Savings:
Small savings consist of post office savings accounts , time deposits and recurring deposits, National Savings Certificates, Indira Vikas Patra etc.
5. Provident Funds:
Receipts under this head related to state provident funds and public provident funds.
6. External Assistance :
This category shows loans received from foreign countries and international organisations such as World Bank, Asian Development Bank etc.
7. Disinvestment Proceeds:
Disinvestment means selling of shares of the public sector enterprises. Funds raised from disinvestment relate to funds obtained by selling the shares of the public sector enterprises to the private sector.
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