Structure of Budget

The budget has two parts: Receipts and Expenditures.


The receipts of government show the different sources from which government raises revenue. These receipts are of two kinds:

  1. Revenue receipts
  2. Capital receipts

Revenue receipts are current income receipts from all sources such as taxes, profits of public enterprises, grants, etc. Revenue receipts neither create any liability nor cause any reduction in the assets of the government. Capital receipts are the receipts of the government which either create liability or cause any reduction in the assets of the government. e.g. borrowings, recovery of loan and disinvestment, etc.

Revenue Receipts

Revenue receipts are current incomes of government, which neither create liabilities nor cause any reduction in the assets of the government. These receipts are classified into Tax Revenue and Non-tax Revenue.

Tax Revenue

A tax is a legal compulsory payment by the people and firms to the government of a country without reference to any direct benefit in return. It is imposed on the people by the government. A government collects revenue from various taxes like income tax, sales tax, service tax, excise duty, custom duty, etc.

Traditionally the revenue from taxes has been the primary source of government income. Income tax is imposed on those who earn income such as wages, salaries, rent, interest and profit. Sales tax is the tax on the sale of goods. Whenever you purchase a good, a part of our payment goes to the government as sales tax. Service tax is the tax you pay when you use a service such as telephone service. Excise duty is a tax paid by the producer manufacturing a good. Custom duty is paid when a good is imported or exported.

All taxes are of two kinds: Direct taxes and Indirect Taxes. This distinction between taxes depends on

  • the liability of payment of tax to government
  • the actual burden of tax

In case of direct taxes, the liability of payment and the burden of the tax falls on the same person. For example, income tax is a direct tax because the person who is liable to pay it also bears the burden of the tax. The burden of the tax cannot be shifted on others. But this does not happen in case of indirect taxes. For example, in case of sales tax, although the liability to pay tax lies with the seller of a good, the actual burden of tax falls on the buyer. The buyer and not the seller is the one who finally pays the sales tax. The seller only collects the tax from the buyer by increasing the price and pays it to the government.

All taxes on production are indirect taxes because producers recover these taxes from buyers by increasing the price of the product.

Example of Direct Taxes

  • Income tax: the tax on incomes of individuals
  • Corporation tax: the tax on corporate profits
  • Wealth tax: the tax on wealth of individuals
  • Gift tax: the tax on gifts given

Example of Indirect Taxes

  • Value added tax
  • Excise duty: the tax on goods manufactured in factories
  • Customs duty: the tax on imports and exports
  • Service tax: the tax on the services provided 

Non-Tax Revenue

The incomes accruing to government from sources other than taxes are non-tax revenues. The major sources of non-tax revenues of the central government of India are:

  1. Commercial Revenue: It is received by government in the form of prices paid by people for goods and services that government provides e.g. people pay for electricity and for services of Railways, postal stamps, toll, etc.
  2. Administrative Revenue: It arises on account of administrative services of the government. They are:
    • fees in the form of passport fees, government hospital fees, education fees, court fee, etc.
    • fine and penalties charged by government on law-breakers for disobeying rules and regulations.
    • licence fee and permit
    • income that government get by taking possession of property which has no legal claimant or legal heir.
    • interest receipts.
    • profits of public sector undertakings.

Capital Receipts

Capital receipts are those receipts of the government which either create liability or cause any reduction in the assets of the government. The major sources of capital receipts of the central government are:

  1. Borrowings
  2. Recovery of Loans
  3. Disinvestment - Resale of shares of public sector undertakings


There are two sources from which the central government borrows. They are:

  1. Domestic Borrowings: The government borrows from domestic financial market by issuing securities and treasury bills. It also borrows from people through various deposit schemes such as Public Provident Fund, Small Savings Schemes, and National Savings Scheme. These are borrowings of the government within the country.
  2. External Borrowings: In addition to domestic borrowings the government also borrows from foreign governments and international bodies like International Monetary Fund (IMF), and World Bank. Foreign borrowings by the government bring in foreign exchange into the domestic economy.

Recovery of Loans

Quite often state and local governments borrow from the central government. The loans recovered by the central government from state and local governments are capital receipts in the budget because recovery of loans reduces debtors (assets).


This is a very recent source of capital receipts by which the central government has been mobilizing financial resources since 1991. Prior to 1991, the central government owned 100 percent of the shares of public sector undertakings. From 1991, the government adopted the policy of privatization of public sector undertakings. Consequently, it started selling its shares to general public and to financial institutions. This selling of shares of public sector undertakings by the government is known as disinvestment of public sector undertakings.


Government expenditure is classified in two ways

  1. Capital and Revenue Expenditure
  2. Plan and Non-Plan Expenditure

Capital Expenditure and Revenue Expenditure

When government incurs expenditure to create assets such as school and hospital buildings, roads bridges, canals, railway lines, etc. or reduce its liability such as repayment of loan, etc., such expenditure is known as capital expenditure. But when government incurs expenditure that neither creates any asset nor reduces any liability, such expenditure is known as revenue expenditure. For Example, payment of salaries to government employees, maintenance of public property, providing free education and health services to people, etc constitute revenue expenditure. These do not create any public asset.

Plan Expenditure and Non-Plan Expenditure

After independence, India adopted the path of planning to achieve economic development. Under planning, provisions were made in the government budget for expenditure that was to be incurred every year according to the priorities laid down in the five-year plans. Such expenditure is known as plan expenditure. Beside plan expenditure, government also incurs routine expenditure such as expenditure on police, judiciary, water supply, sanitation and health, legislatures, defence, various government departments, etc. Such routine expenditure is termed as non-plan expenditure.