2.1.1. Revenue Account

Revenue Account consists of the revenue receipts of Government and the expenditure met from these revenues.

Revenue receipts – These are the receipts which need not to be paid back to the payee by the government, that is, it is non-redeemable. It cannot be reclaimed by the government. Therefore they are one way transaction. It does not create liability for the government. They are divided into tax revenues and non-tax revenues.

♤ Tax revenues – It is the revenue generated by levy and collection of taxes by the central government. It comprises of direct taxes and indirect taxes.

o Direct taxes – These are the taxes which falls directly on individuals and firms like Income tax (tax on personal income of an individual), corporate tax (tax on a firm), securities transaction tax, commodities transaction tax etc.

Other direct taxes such as wealth tax (abolished in 2015-16 budget), gift tax and estate duty (now abolished) have never been of much significance in terms of revenue yield and therefore these are known as paper taxes.

o Indirect taxes – These are the taxes which may be levied on one person but ultimately paid by others. For example – excise duty is levied on producer but ultimately is paid by consumer along with the price.

It includes excise taxes (duties levied on goods produced within the country), customs duties (taxes imposed on goods imported into and exported out of India), sales tax/VAT

(tax on sales of goods levied by state government), central sales tax (tax on sales of goods in inter-state trade levied by central government but collected and retained by state) and service tax (tax imposed on services).

♤ Non-Tax revenues – It mainly consists of

o Interest receipts – It is the interest income from the loan given by the central government to state government and other government bodies. This constitutes the single largest item of non-tax revenue

o Dividends and profits on the investment made by the government. Dividends are income from the shares held by government in private enterprises and semi government enterprises. Profits are dividend income from the fully government owned enterprises

o Fees and other receipts for the services rendered by the government

o Cash grants-in-aid from foreign countries and international organizations.

The estimates of revenue receipts shown in the Annual Financial Statement take into account the effect of various taxation proposals made in the Finance Bill. )

Revenue expenditure – It consists of all those expenditures of the government, which do not result in creation of physical or financial assets. It relates to those expenses incurred for the normal functioning of the government departments and various services, i.e., day to day and regular needs expenditure that will not yield any revenue in future. It is a one way payment which mean if government spends money it cannot recover it. Till 2017-2018 budget, it included two components:

♤ Plan Revenue expenditure – It used to be related to Central Plans (the Five-Year Plans) and central assistance for State and Union Territory Plans.

♤ Non-plan revenue expenditure – It included:

o Interest payments on debt incurred by the government through market loans or external loans or from various other reserve funds

o Grants given to state governments and other parties (even though some of the grants may be meant for creation of assets).

o Others - defense services, subsidies, salaries and pensions and various social services (non-capital expenditure towards health, education etc.).

This categorization stands abolished by the 2017-2018 budget, based on the recommendation of Rangarajan Committee. This would be further discussed later in this document.