Distinguish between Revenue Receipts and Capital Receipts of the…

Distinguish between Revenue Receipts and Capital Receipts of the government, with suitable example.

Ans. Revenue Receipts:

• Revenue receipts refer to income earned by the government from its regular activities and ongoing operations.

• These receipts do not lead to any liability or create any asset for the government.

• Examples of revenue receipts include tax revenue (like income tax, corporate tax, and GST), non-tax revenue (like interest received, dividends, and fees), and grants-in-aid from other governments.

Example: Income Tax – The income tax collected by the government from individuals and corporations is a revenue receipt. It is earned from the regular activity of taxation and is used to fund ongoing government expenses such as salaries, subsidies, and administrative costs.

Capital Receipts:

• Capital receipts refer to funds received by the government from the sale of assets, borrowings, or repayment of loans.

• These receipts either create a liability for the government or result in the creation of assets.

• Examples of capital receipts include proceeds from the sale of government assets (like disinvestment of public sector enterprises), borrowings from domestic or international sources (like issuing bonds), and recovery of loans given by the government.

Example: Disinvestment Proceeds – When the government sells its stake in a public sector enterprise, the funds received from the sale are considered capital receipts. These funds can be used to reduce government debt or finance capital expenditure such as infrastructure development.