Budget Receipts

Budget Receipts: Which comes to Govt.

Budget receipts refer to the estimated money receipts of the government from all sources during a given fiscal year. Budget receipts may be further classified as:

(i) Revenue receipts;

(ii) Capital receipts.

budget receipts

Revenue Receipts:

Revenue receipts refer to those receipts which neither create any liability nor cause any reduction in the assets of the government. They are regular and recurring in nature and government receives them in its normal course of activities.



A receipt is a revenue receipt, if it satisfies the following two essential conditions:

(i) The receipt must not create a liability for the government. For example, taxes levied by the government are revenue receipts as they do not create any liability. However, any amount, borrowed by the government, is not a revenue receipt as it causes an increase in Satisfies both the Conditions the liability in terms of repayment of borrowings.

(ii) The receipt must not cause decrease in the assets. For example, a receipt from sale of shares of a public enterprise is not a revenue receipt as it leads to a reduction in assets of the government.

Capital Receipts:

Government receipts which either (i) create liabilities (e.g. borrowing) or (ii) reduce assets (e.g. disinvestment) are called capital receipts. Thus when govt. raises funds either by incurring a liability or by disposing off its assets, it is called a capital receipt.

(A) Two examples of Capital Receipts which create liability are Borrowing and raising of funds from Public Provident Fund and Small savings deposits.

  • Borrowings are treated capital receipts because they create liability of returning loans,
  • Similarly, funds raised from PPF, small saving deposits in post offices and banks are treated capital receipts because they Increase liability of the government to repay these amounts to PPF (Public Provident Fund) holders and small savings depositors.

(B) Two examples of Capital Receipts which reduce assets are Disinvestment and Recovery of Loans.

(i) Disinvestment by government means selling a part or whole of its shares of public sector undertakings (e.g., HMT, LIC, and FCI). Funds raised from disinvestment reduce government assets

(ii) Recovery of loan is also capital receipt as It reduces government assets. For Instance, If UP government, which has taken loan of Rs 100 crore from Central government, repays Rs 20 crore, value of Central government assets of Rs 100 crore is now reduced to Rs 80 crore because of partial recovery of loan.

Difference between revenue and capital receipts:

The main difference between revenue receipts and capital receipts is that in the case of revenue receipts, government is under no future obligation to return the amount, i.e., they are non­-redeemable. But In case of capital receipts which are borrowings, government is under obligation to return the amount along with Interest. Debt is creating and non-­debt creating capital receipts: Capital receipts may be debt creating or non-debt creating.

Examples of debt creating receipts are—Net borrowing by government at home, loans received from foreign governments, borrowing from RBI. Examples of non­-debt capital receipts are— Recovery of loans, proceeds from sale of public enterprises (i.e., disinvestment), etc. These do not give rise to debt.

Two Sources of Revenue Receipts:

Revenue receipts of the government are generally classified under two heads:

(i) Tax Revenue

(ii) Non-Tax Revenue

Tax Revenue:

Tax revenue refers to sum total of receipts from taxes and other duties imposed by the government. Tax is a compulsory payment made by people and companies to the government without reference to any direct benefit in return.

It means, there are two aspects of taxes:

(i) Tax is a compulsory payment, i.e., no one can refuse to pay it;

(ii) Tax receipts are spent by the government for common benefit of people in the country. A tax payer cannot expect that the tax amount will be used for his direct benefit.

Tax revenue is the main source of regular receipts of the government. Government collects various kinds of taxes from public to meet its day-to-day expenditures and there is a strict action against anyone who fails to pay the taxes.

Tax Revenue can be further classified as:

(i) Direct Taxes

(ii) Indirect Taxes


Direct Taxes:

Direct taxes refer to taxes that are imposed on property and income of individuals and companies and are paid directly by them to the government.

i. They are imposed on individuals and companies.

ii.The ‘liability to pay’ the tax (i.e. impact) and ‘actual burden’ of the tax (i.e. incidence) lie on the same person, i.e. its burden cannot be shifted to others.

For example, in case of income tax, the liability to pay tax (i.e. impact) and ‘actual burden’ is on the same person on whom it is levied.

iii. They directly affect the income level and purchasing power of people and help to change the level of aggregate demand in the economy.

iv. Examples: Income tax, corporate tax, Interest tax, Wealth tax, Death duty, Capital gains tax, etc.

Direct Tax Systems can be Progressive, Regressive or Proportional.

Indirect Taxes:

Indirect taxes refer to those taxes which affect the income and property of individuals and companies through their consumption expenditure.

They are imposed on goods and services.

1. The ‘liability to pay’ the tax (i.e. impact) and ‘actual burden’ of the tax (i.e. incidence) lie on different persons, i.e. its burden can be shifted to others.

2. For example, in case of sales tax, the liability to pay tax to the government (i.e. impact) is on sellers. But, ‘actual burden’ (i.e. incidence) is on consumers because sellers collect the sales tax from them. So, burden of indirect taxes can be shifted.

3. Examples: Sales tax, Service tax, VAT, Entertainment tax, Excise duty, Custom duty, etc.

4. Indirect Taxes can be avoided: Indirect taxes are compulsory payments. But, they can be avoided by not entering into those transactions, which call for such taxes. For example, consumers may save taxes by purchasing Khadi Gram Udyog items as there is no indirect tax on khadi items.

How to classify a Tax as Direct Tax or Indirect Tax?

1. A tax is a direct tax, if its burden cannot be shifted. For example, income tax is a direct tax as its impact and incidence is on the same person.

2. A tax is an indirect tax, if its burden can be shifted. For example, sales tax is an indirect tax as its impact and incidence is on different persons.

Comparison between Direct Taxes and Indirect Taxes

Basis Direct Taxes Indirect Taxes
Impact Direct taxes are levied on individuals and companies. Indirect taxes are levied on goods and services
Shift of burden The burden of a direct tax cannot be shifted, i.e. impact and incidence is on the same person. The burden of an indirect tax can be shifted, i.e. impact and incidence is on different persons.
Nature They are generally progressive in nature. They are generally proportional in nature.
Coverage They have limited reach as they do not reach all the sections of the economy. They have a wide coverage as they reach all the sections of the society.

Items categorized as Direct and Indirect Taxes:

1. Corporation tax:

It is a direct tax as its impact and incidence lie on the same person.

{Alternately, it is a direct tax as its liability to pay the tax (i.e. impact) and actual burden of the tax (i.e. incidence) lie on the same person.}

2. Value Added tax:

It is an indirect tax as its impact and incidence lie on different persons. Alternately, It is an indirect tax as its liability to pay the tax (i. e. impact) and actual burden of the tax (i.e. incidence) lie on two different persons, i.e. its burden can be shifted.)



3. Service tax:

It is an indirect tax as its impact and incidence lie on different persons.

4. Excise Duty:

It is an indirect tax as its impact and incidence lie on different persons.

5. Wealth tax:

It is a direct tax as its impact and incidence lie on the same person.

6. Sales tax:

It is an indirect tax as its impact and incidence lie on different persons.

Non-Tax Revenue:

Non-Tax revenue refers to receipts of the government from all sources other than those of tax receipts.

The main sources of non-tax revenue are:

1. Interest:

Government receives interest on loans given by it to state governments, union territories, private enterprises and general public. Interest receipts from these loans are an important source of non-tax revenue.

2. Profits and Dividends:

Government earns profit through public sector undertakings like Indian railways, LIC, BHEL, etc. It earns profit from the sale proceeds of the products of such public enterprises. Government also gets dividend from its investments in other companies.



3. Fees:

Fees refer to charges imposed by the government to cover the cost of recurring services provided by it. Such services are generally in public interest and fees is paid by those, who receive such services. It is also a compulsory contribution like tax. Court fees, registration fees, import fees, etc. are some examples of fees.

4. License Fee:

It is a payment charged by the government to grant permission for something. For example, license fee paid for permission of keeping a gun or to obtain National Permit for commercial vehicles.

5. Fines and Penalties:

They refer to those payments which are imposed on law breakers. For example, fine for jumping red light or penalty for non-payment of tax. Fines are different from taxes as the former is levied to maintain law and order, whereas, the latter is imposed to generate revenue.

6. Escheats:

It refers to claim of the government on the property of a person who dies without leaving behind any legal heir or a will.

7. Gifts and Grants:

Government receives gifts and grants from foreign governments and international organisations. Sometimes, individuals and companies also voluntarily gift money to the government. Such gifts are not a fixed source of revenue and are generally received during national crisis such as war, flood, etc.

8. Forfeitures:

These are in the form of penalties which are imposed by the courts for non-compliance of orders or non-fulfillment of contracts etc.

9. Special Assessment:

It refers to the payment made by owners of those properties whose value has appreciated due to developmental activities of the government. For example, if value of a property near a Metro Station has increased, then a part of developmental expenditure is recovered from owners of such property in the form of special assessment.

0 responses on "Budget Receipts"

Leave a Message

Your email address will not be published. Required fields are marked *

About Us

Go Prep An Online Educational Platfom

Follow Us

CONTACT US

22-49/4, SR RESIDENCY KAMALANAGAR,DILSUKNAGAR, HYDERABAD-500060 PH N0. : +91 9030 832 730 E-MAIL : admin@goprep.in
top
Krishna's Group. All Rights Reserved

Budget Receipts

X

Send this to a friend