BUDGET :

Government budget can broadly be classified into:

• Revenue Budget 
• Capital Budget 

Both revenue and Capital budget can further be classified as receipts and Expenditure as depicted in the below mentioned image.

Credit of the image: NCERT -Introductory Macro Economics, class XII.

 

Revenue Budget: The revenue account shows the current receipts of the government and the expenditure that can be met from these receipts. It comprises of Revenue receipts and revenue expenditures.

Revenue Receipts:

• Those receipts that neither create any liabilities nor lead to any claim on the government are called revenue receipts. 
• Revenue receipts are non-redeemable .
• These are divided into tax and non-tax revenues. 

Tax Revenue:

Tax revenue consist of the proceeds of taxes and other duties levied by the central government. Tax revenue comprise of direct taxes and indirect taxes.

Direct Tax : It  is paid directly by an individual or organization to the imposing entity/Government. . 

Example of direct tax are: Personal income tax or  corporation tax, wealth tax, Capital Gains tax, Property Tax, Entertainment Tax, STT, DDT and MAT etc. 

Indirect Tax: Those taxes which are not directly levied on the Income of an Individual rather  indirectly levied on the expenses incurred by the Individual. This tax is basically levied on the seller of goods but finally it is being paid by the end consumer. Examples :GST ,custom duty.

Non-tax revenue :

It mainly consists of interest receipts, dividends and profits on investments made by the government, fees, fines, stamp duties, gifts and grants from other countries ,escheats   and other receipts for services rendered by the government. Cash grants-in-aid from foreign countries and international organisations are also included. 

Revenue Expenditure:

• Revenue expenditure consists of all those expenditures of the government which do not result in creation of physical or financial assets. 
• These expenses are incurred for day to day functioning of the government departments and various services, interest payments on debt incurred by the government, and grants given to state governments and other parties . 
• Interest payments on market loans, external loans and from various reserve funds constitute the single largest component of non-plan revenue expenditure. 
• Subsidies are an important policy instrument which aim at increasing welfare.

The Capital Budget :

The Capital Budget is an account of the assets as well as liabilities of the central government, which takes into consideration changes in capital.

Capital Receipts: 

• These receipts that either create liabilities or reduce assets .
• These receipts are redeemable .
• These receipts are not of recurring nature .
• The main items of capital receipts are loans raised by the government from the public which are called market borrowings, borrowing by the government from the Reserve Bank and commercial banks and other financial institutions through the sale of treasury bills, loans received from foreign governments and international organisations, and recoveries of loans granted by the central government.
•  Other items include small savings (Post-Office Savings Accounts, National Savings Certificates, etc), provident funds and net receipts obtained from the sale of shares in Public Sector Undertakings (PSUs).

Capital receipts can be classified as :

• Debt creating capital receipts and 
• Non-debt creating capital receipts ,

Non debt capital receipts are those receipts which don’t create liability on Government to be paid back like Disinvestment amount and Loan payments received. All the loans taken by Government creating to be paid back are said to be Debt creating Capital receipts.

Capital Expenditure :

• Expenditure  generally made to acquire an asset or improve the capacity of the asset.
• Its nature is creation of Long Term assets 
• It is of non recurring and one time investment in most of the cases .
• Capital Expenditure is capitalized as opposed to Revenue Expenditure which is not capitalized. This is asset capitalization.
• Capital expenditure was also categorised as plan and non-plan in the budget documents. 
• Plan capital expenditure, like its revenue counterpart, relates to central plan and central assistance for state and union territory plans. 
• Non-plan capital expenditure covers various general, social and economic services provided by the government.
• Capital Expenditure includes expenditure on the acquisition of land, building, machinery, equipment, investment in shares, and loans and advances by the central government to state and union territory governments,PSUs and other parties.