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Types of Receipts of Union Budget

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  • Last Updated : 29 Sep, 2021

The Union Budget provides information about the expected receivables and payable of the government for a financial year that runs from April 1st to March 31st.  As mentioned in the Constitution of India (Under Article 112), the Financial Budget is the most comprehensive overview of the government’s financial year, including revenue from all sources and expenditure from all activities.

Since 2017, the Union Budget has been announced on the first of February every year, before this it was presented every year in the parliament house generally in the month of February. It is presented in the form of a finance bill and an appropriation bill by the Department of Economic Affairs, Ministry of Finance, and Government of India. Before the budget takes effect on April 1st, these bills must be passed by Parliament. The Union Budget is a financial statement of the government for the fiscal year that spans from April 1 to March 31. The Union Budget is divided into two parts: revenue and capital.

A receipt is a written confirmation that a valuable item has been transferred from one party to another. Receipts are also given in business-to-business transactions and stock market transactions, in addition to the receipts that are generally issued to customers by vendors and service providers. Receipts, on the other hand, are divided into two categories. They are as follows:

  1. Revenue receipts
  2. Capital receipts

1. Revenue receipts:

Revenues that do not result in a claim against the government are referred to as revenue receipts. As a result, they are referred to as non-redeemable. Tax revenues have long been divided into direct taxes (personal income tax) and firms (corporation tax), as well as indirect taxes such as excise taxes (duties charged on commodities produced within India), customs duties (taxes imposed on items imported into and exported out of India), and service tax. Other direct taxes, such as the wealth tax, gift tax, etc. have never generated significant income and have so been labeled as “paper taxes.”

The goal of redistribution is to be realized through progressive income taxes, which means that the higher the income, the higher the tax rate. Firms are taxed on a proportional basis, which means that the tax rate is based on a percentage of profits. Excise taxes are divided into three categories: needs of life are excluded or charged at low rates, comforts and semi-luxuries are moderately taxed, and luxuries, cigarettes, and petroleum items are substantially taxed.

The central government’s non-tax revenue is mostly made up of interest payments on loans, dividends and profits on investments made by the government, and fees and other receipts for services given by the government. Foreign aid grants and international organization’s cash grants are also covered.

Types of Revenue Receipts:  

Tax and non-tax receipts are the two categories of revenue receipts.

1. Tax: It refers to the government’s receipts through taxes and other duties imposed. For example, income tax, GST, and so on.

Types of taxes: Taxes are divided into two categories: direct and indirect taxes.  

  • Direct tax: It is a tax in which the ‘liability to pay and the ‘actual burden of the tax’ are both borne by the same person. The tax burden cannot be transferred or passed on to a third party (i.e. Incidence of tax cannot be shifted). It is usually levied on the income and assets of individuals and businesses and is paid directly to the government by them. Income tax, wealth tax, corporation tax, etc. are some of the examples of such taxes.
  • Indirect tax: It refers to a tax in which the tax’s ‘obligation to pay and ‘real burden’ fall on separate people. The tax’s actual impact might be passed on to consumers/buyers in the form of higher pricing. (I.e. the tax incidence can be altered). It is usually levied on goods and services, affecting individuals’ and businesses’ income and property through their consumption spending. VAT, GST, Excise duty, Customs duty, and so on are examples of taxes.

2. Non- Tax Receipts: Non-Tax Revenue Receipts are the government’s (current income) receipts from all other sources other than tax receipts. It includes-  

  • Interest earned on government loans to state governments, union territories, private businesses, and the general public.
  • Profits of Public Sector Undertakings like Railways, LIC, and others (profits earned from the sale proceeds of public companies’ products).
  • Dividends received by the government from other enterprises in which it has invested.
  • Government-collected fees and fines, such as license fees.
  • Donations and grants are received by the government from foreign countries, foreign governments, and international organizations.

Features of Revenue Receipts:

  1. Means of Surviving: A business begins operations with the expectation of receiving money as a result of the services it provides to its clients. They can either sell a bunch of items or provide services. They can’t last long without revenue receipts, no matter what they do, because revenue receipts are received from the business’s actual operations.
  2. For a limited time only: Revenue receipts are money received for a brief period and are therefore only applicable for a short period. The benefit of revenue receipts is only valid for one accounting year and cannot be extended.
  3. Recurring: Revenue receipts provide benefits for a limited time, they must be recurring. The business would not be able to survive for long if revenue receipts did not reoccur.
  4. Impact on profit/loss: Revenue receipts have a direct impact on business profit and loss. When a corporation receives income, it will either boost its profit or add to its loss.

2. Capital Receipts:

The government also receives funds from the sale of its assets or through loans. Loans must be returned to the lending agencies from whence they were obtained. As a result, they become liable. The selling of government assets, such as shares in Public Sector Undertakings (PSUs), also known as PSU disinvestment, reduces the government’s total financial assets. Capital receipts are any government receipts that result in a liability or a reduction in financial assets. When the government takes out new loans, it means that these loans will have to be paid back in the future, along with interest. Similarly, when the government sells an asset, the earnings from that asset will be lost in the future. As a result, these receipts can be either debt-generating or non-debt-generating.

Types of Capital Receipts:

There are two types of Capital Receipts: Debt-creating and Non-Debt creating Capital Receipts.

  • Debt-creating Capital Receipts: These are capital receipts that raise the government’s liability and that the government must repay with interest. For example, the government’s net borrowing at home, RBI borrowings, and loans from foreign governments.
  • Non-Debt Creating Capital Receipts:  Non-debt generating capital receipts are those that are not borrowed money and hence do not result in debt. Recovery of loans and earnings from the sale of PSU shares, often known as disinvestment, are examples of government assets being reduced.

Features of Capital Receipts:

  • Capital receipts are one-time payments.
  • Non-operating activities produce funds through capital receipts.
  • It either adds to the obligation or subtracts from the asset.
  • The income statement is unaffected, however, capital receipts influence the balance sheet.

Conclusion:  

The Union Budget takes steps to control inflation, deflation, and economic fluctuations while providing economic stability in the country. The Union Budget has the potential to change the tax structure of the country and ensures fair distribution of revenue through taxes and subsidies. Many factors influence these decisions, including income and credit availability. The demand at any age cannot be high enough for labor and other economic resources to be fully employed. The aggregate level of employment and prices in the economy is governed by aggregate demand, which is determined by the spending decisions of millions of private economic agents other than the government.

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