Difference between Revenue Receipt and Capital Receipt

The estimated money receipts of the government from all sources during a fiscal year are known as Budget Receipts. The two different kinds of budget receipts are Revenue Receipt and Capital Receipt.

Table of Content

• What is Revenue Receipt?
• What is Capital Receipt?
• Difference between Revenue Receipt and Capital Receipt
• Example

What is Revenue Receipt?

The receipts which neither create liability nor cause any reduction in the government’s assets are known as Revenue Receipt. These are government receipts that do not lead to a claim against the government. Therefore they are called non-redeemable. In simple words, 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.

What is Capital Receipt?

The receipts during a fiscal year that either creates liability or cause a reduction in the government’s assets are known as Capital Receipts. These are non-recurring and not routine. Simply put, a Capital Receipt consists of: Proceeds from disinvestment, i.e., when the government sells shares of public sector enterprises to the private sector, Government borrowings from within the country and abroad, and Loan recovery from state government and other debtors. 

Difference between Revenue Receipt and Capital Receipt

Basis	Revenue Receipt	Capital Receipt
Meaning	The receipts which neither create liability nor cause any reduction in the government’s assets.	The receipts during a fiscal year that either creates liability or cause a reduction in the government’s assets.
Appears in	Revenue Receipts appear in Trading and Profit & Loss Account.	Capital Receipts appear in Balance Sheet.
Nature	Revenue Receipts are recurring and regular in nature.	Capital Receipts are non-recurring and irregular in nature.
Source	Revenue Receipts come from operational sources.	Capital receipts come from non-operational sources.
Reserve Funds	The government can save revenue receipts by creating reserve funds.	The government cannot save capital receipts by creating reserve funds.
Future Obligation	There is no future obligation to return the amount of revenue receipts.	There is a future obligation to return the amount with interest in case of some capital receipts.
Distribution	Revenue Receipts are available for distribution of profits.	Capital Receipts are not available for distribution of profits.
Example	Tax Revenue like GST, Income Tax, etc., and Non-Tax Revenue like Fees, Interest, etc.	Disinvestment, Loan Recovery, Borrowings, etc.

How to classify a receipt as Revenue Receipt or Capital Receipt?

• If a receipt either creates a liability or reduces an asset, it is a Capital Receipt.
• If a receipt neither creates a liability nor reduces an asset, it is a Revenue Receipt.

Example:

Classify the following receipts as Revenue Receipt and Capital Receipt.

1. Corporation tax.
2. Financial help from Google for the victims of earthquake affected areas.
3. Amount borrowed from Japan for the construction of Metro.
4. Receipt from the sale of shares of public sector enterprise/Disinvestment.
5. Grants received from World Bank.
6. Borrowing from the general public.
7. Dividend on the investment made by the government.
8. Loan recovered from Public Sector Enterprises.
9. Assistance from abroad for earthquake victims.
10. Tax Receipts.

Answer:

1. It is a Revenue Receipt as it does not create a liability for the government or does not lead to a reduction in assets.
2. It is a Revenue Receipt as it does not create a liability for the government or does not lead to a reduction in assets.
3. It is a Capital Receipt since it generates a liability for the government.
4. It is a Capital Receipt since it reduces the assets of the government.
5. It is a Revenue Receipt as it does not create a liability for the government or does not lead to a reduction in assets.
6. It is a Capital Receipt since it generates a liability for the government.
7. It is a Revenue Receipt as it does not create a liability for the government or does not lead to a reduction in assets.
8. It is a Capital Receipt since it reduces assets of the government.
9. It is a Revenue Receipt as it does not create a liability for the government or does not lead to a reduction in assets.
10. It is a Revenue Receipt as it does not create a liability for the government or does not lead to a reduction in assets.