Consider the following statements:
- Capital receipts create a liability or cause a reduction in the assets of the Government.
- Borrowings and disinvestment are capital receipts.
- Interest received on loans creates a liability of the Government.
Which of the statements given above are correct?
- I and II only
- II and III only
- I and III only
- I, II and III
Answer: (a)I and II only
Capital Receipts
- Capital receipts are defined as government receipts that either create a liability (e.g., borrowing) or reduce financial assets (e.g., disinvestment), as detailed in these results.
- They are non-recurring, long-term funds used for development or debt repayment, unlike revenue receipts, which do not impact the balance sheet.
- Common examples include borrowings, disinvestment proceeds, and the recovery of loans.
- Key Features and Examples:
- Create Liability: Borrowings from the public, foreign governments, or central banks are considered capital receipts because they must be repaid.
- Reduce Assets: Disinvestment (selling shares in Public Sector Units), selling land, or selling machinery falls under this category.
- Non-recurring: Unlike revenue receipts (e.g., taxes), capital receipts are not received on a regular, routine basis.
- Loan Recovery: When the government recovers loans previously granted to state governments or PSUs, it reduces its financial assets, making it a capital receipt.
- Difference from Revenue Receipts
- Capital Receipts: Do not directly affect the profit and loss statement; they appear on the balance sheet. They are typically not taxable, unless specific capital gains taxes apply.
- Revenue Receipts:Earned through regular business or government operations (e.g., taxes, fees, dividends) and are recurring.
- Interest received on loans given by the Central government to the states or other countries is classified as a revenue receipt since it represents income for the government and does not result in any liability.
