Revenue Receipts: Economy Concept for UPSC Exams

Revenue receipts do not produce any obligations and do not result in a claim against the government. These non-redeemable revenue receipts can be divided into two categories: tax revenue and non-tax revenue. Tax revenues are the most important components of revenue collections, divided into direct taxes, enterprises, and indirect taxes such as customs duties, excise taxes, and service taxes for a long period. Non-tax revenues, on the other hand, are recurrent money generated by the government from sources other than taxes.

Revenue Receipts

This article will help you understand the significance and structure of the Revenue Receipts. Study major topics of the Indian Economy from the perspective of UPSC Exams. It falls under the General Studies Paper 1 (preliminary) and General Studies Paper 3 (Mains) under the Indian Economy Section

What Are Revenue Receipts?

Revenue receipts are those that do not result in liability for the government or a loss in its assets. They are of a regular and recurring character, and the government receives them as part of its usual operations. The earnings from the Centre’s taxes and other responsibilities, as well as the interest and dividends it receives on its investments and the fees and charges it receives for its services, are all included in revenue receipts. The government does not incur any liabilities as a result of revenue collections. Taxes, for example, do not generate any obligations for the government, unlike borrowings.

Check the details on the Economy Notes Here.

Examples of Revenue Receipts

• Money received from goods and services provided to the clients
• Discount received from the vendors, suppliers, or the creditors
• Sales and Service Revenues
• Any kind of rent received
• Interest earned
• Tourism and Entertainment Income
• Any bad-debts recovered
• Divided received
• Revenue earned by any waste or scrap material, etc. 

Various Features of Revenue Receipts

• Diverse Sources: Revenue receipts in India originate from various sources, including taxes, fees, grants, and profits.
• Non-Debt Capital: Revenue receipts are non-debt capital, meaning they don't create liabilities for the government.
• Government Income: They constitute a significant part of the government's income, funding public services and development projects.
• Taxation: Tax revenues, like income tax, GST, and corporate tax, are a major component of revenue receipts.
• Grants-in-Aid: Grants from the central government to state governments and union territories contribute to revenue receipts.
• Fees and Fines: Fees for services, fines, and penalties paid by citizens and businesses are included.
• Public Enterprises: Revenue generated by public-sector enterprises through sales, dividends, and profits are considered.
• Non-Tax Sources: Non-tax sources include interest income, dividends, and royalties.
• Steady Inflow: Revenue receipts provide a consistent income flow for government operations.
• Economic Growth: They play a role in fostering economic growth and development in India.

Classification of Revenue Receipts

There are two types of revenue receipts: 

1. Tax Revenue
2. Non-Tax Revenue

What is Tax Revenue?

• Tax revenues are either from direct taxes or indirect taxes. Direct tax generally means a tax paid directly to the government by the persons on whom it is imposed.
• Income Tax, Gift Tax, Wealth Tax, Property tax, etc. are direct taxes.
• Indirect tax is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the consumer).
• Sales tax, Value Added Tax (VAT), Goods and Services Tax (GST), or any other such tax is an indirect tax.
• Tax is a compulsory payment that is made to the government by the people or the companies without having any direct benefit in return.
• The sum of all receipts from the taxes and all other duties under the government are referred to as tax revenue.
• They are either direct taxes or indirect taxes. It is the main source of regular receipts of the government and is categorized into Direct Taxes and Indirect Taxes.
• There is no reduction in the government’s assets due to revenue receipts.
• As a result, the government cannot show income inflows from the sale of an interest in a public-sector business because the stake sale reduced the government’s assets.

Also, read the Central Board of Direct Taxes here.

Direct Taxes

• Direct taxes are levied on an individual’s or a company’s property and revenue.
• Direct taxes are levied on businesses and people and are paid directly to the government.
• Direct taxes have an impact on people’s income levels as well as their purchasing power.
• It also aids in the adjustment of the economy’s aggregate demand. Direct taxation can be proportional, progressive, or regressive.

Indirect Taxes

• Indirect taxes are taxes that are not levied directly on individuals.
• Indirect taxes affect an individual’s or a company’s income and property through their consumption spending.
• Indirect taxes, often known as compulsory payments, are levied on products and services.

Check out the Economic Survey 2022 here.

What is Non-Tax Revenue?

• Tax money is the government’s most important source of revenue, but the amount collected varies depending on job conditions, consumption levels, and other factors, thus non-tax revenues help to balance off the modest but consistent flow of revenue from a variety of sources.
• Non-tax revenues assist the government to recoup the costs of services provided in addition to being a source of money for the government.
• On the loans and cash advances to states for various reasons, the government also receives interest as non-tax revenue.
• So, in exchange for providing/facilitating any products or services, the government obtains non-tax money.
• Non-tax revenue is generated through various government services, including police services, power, municipal services, and so on.
• For the state government involved, these sources become a source of non-tax revenue.
• Non-tax revenue sources for the state government include:
  • Police services
  • Home guards
  • Electricity
  • Administrative services
  • Municipal services
  • Jobs through state public service boards
  • Sale of stationery
  • Gazettes
• Fees: Fees are levies collected by the government to cover the expense of ongoing services. It is an obligatory tax-like contribution. A licensing fee is a sort of tax charged by the government and its related companies for engaging in a certain activity, such as opening a restaurant or driving a heavy vehicle.
• Forfeitures: Forfeitures are the uncompensated loss of property due to failing to fulfil contractual obligations or as a punishment for criminal behavior. A defaulting party’s obligation to relinquish ownership of an asset or cash flows from an asset in exchange for the other party’s losses is referred to as forfeiture under contract provisions.
• Fees for Communication Services: The majority of this is made up of license fees from telecom operators for spectrum usage costs that licensed Telecom Service Providers pay to the government ministry in charge of telecommunications.
• Interest: Interest on loans and insurance provided to the government for non-planned and planned schemes, as well as interest on loans advanced to PSEs and other statutory entities, fall under this category.
• Fines and penalties: Fines are most typically used in criminal law, when a court will impose a fine on a person guilty of a crime. In contrast, the penalty is used in both civil and criminal law. It includes both financial and physical sanctions.

Also, read the Land Revenue System in India here.

Difference between Tax Revenue and Non-Tax Revenue

• The difference between tax revenue and non-tax revenue is that the former is imposed on an entity’s income, which is a direct tax. At the same time, the latter is levied on the value of goods and services transactions, which is an indirect tax.
• Taxes are levied on an individual’s or an entity’s income (Direct tax) and the value of goods and services transactions (indirect tax).
• Non-tax revenue, on the other hand, is deducted from the government’s services. Interest on loans provided by the government for different reasons is also included.
• It is mandatory to pay tax on a portion of the money earned/generated and the quantity of goods and services consumed.
• Non-tax revenue, on the other hand, is only due when the government’s services are used.

Also, check out Economic Survey 2022 Volume I here.

Accounting Treatment of Revenue Receipts

• Revenue receipts must be accurately identified and categorized.
• They are recognized in the accounting period when received.
• Revenue accounts in the income statement reflect the source.
• The double-entry system maintains balance sheet accuracy.
• Accounting can follow accrual or cash basis methods.
• Proper documentation is essential for evidence.
• Regular reporting occurs in financial statements.
• Compliance with accounting standards is necessary.
• Transparent disclosure provides clarity to stakeholders.
• Independent audits verify financial accuracy.

Sources of Tax Revenue

• The government gets its money through taxes and various other non-tax sources. Taxation is one of the most important sources of money for the government to carry out its functions. Corporation tax, income tax, Customs, Union excise duty, service tax, and other taxes are among the key sources of revenue.
• Income tax is the government’s other source of revenue. Salaried people are taxed, and they are divided into several tax brackets with varying tax rates. The income tax includes collections, surcharges, the Securities Transaction Tax (STT), and other similar charges.
• The wealth tax includes the tax on real estate, other types of wealth, and the gift tax. Customs duties generate revenue through import duties, basic duties, and duties levied on specific items. Export taxes and duties also contribute to the same. Union excise duties levied on various items also contribute to tax revenue.
• The corporation tax is the government’s primary source of revenue. Corporation tax is payable by both public and private enterprises incorporated under the Companies Act of 1956.
• Corporation tax is charged on the company’s net income. The collection, surcharge, Cess, and other revenues account for a sizable portion of the revenue.

Central Government Receipts in 2022-23 (Rs Crore) 

Budget Receipts	Actuals 2020-21	Budgeted 2021-22	Revised 2021-22	Budgeted 2022-23	% change (RE 2021-22 to BE 2022-23)
Gross Tax Revenue	20,27,104	22,17,059	25,16,059	27,57,820	9.6%
Corporation Tax	4,57,719	5,47,000	6,35,000	7,20,000	13.4%
Taxes on Income	4,87,144	5,61,000	6,15,000	7,00,000	13.8%
Goods and Services Tax	5,48,778	6,30,000	6,75,000	7,80,000	15.6%
Customs	1,34,750	1,36,000	1,89,000	2,13,000	12.7%
Union Excise Duties	3,91,749	3,35,000	3,94,000	3,35,000	-15.0%
Service Tax	1,615	1,000	1,000	2,000	100.0%
A. Centre’s Net Tax Revenue	14,26,287	15,45,397	17,65,145	19,34,771	9.6%
Devolution to States	5,94,997	6,65,563	7,44,785	8,16,649	9.6%
B. Non Tax Revenue	2,07,633	2,43,028	3,13,791	2,69,651	-14.1%
Interest Receipts	17,113	11,541	20,894	18,000	-13.9%
Dividend and Profits	96,877	1,03,538	1,47,353	1,13,948	-22.7%
Other Non-Tax Revenue	93,641	1,27,948	1,45,544	1,37,703	-5.4%

Difference Between Revenue Receipt and Capital Receipt

BASIS FOR COMPARISON	CAPITAL RECEIPT	REVENUE RECEIPT
Meaning	Capital Receipts are the income generated from investment and financing activities of the business.	Revenue Receipts are the income generated from the operating activities of the business.
Nature	Non-Recurring	Recurring
Term	Long Term	Short Term
Shown in	Balance Sheet	Income Statement
Received in exchange of	Source of income	Income
Value of asset or liability	Decreases the value of asset or increases the value of liability.	Increases or decreases the value of asset or liability.

Conclusion

Revenue receipts neither create a liability nor reduce the government’s assets. They are regular and recurring, and the government receives them as part of its normal operations. The sum received in the form of capital Revenue receipts are the sums received primarily from the sale of goods introduced, loans taken, and sale proceeds of and services. 

In this article, we analyze the types of revenue Receipts. Revenue receipts are classified into two groups based on this criterion: tax revenue and non-tax revenue. To study more topics from the Indian Economy for UPSC, download the Testbook App now!