Distinguish between capital budget and Revenue Budget. Explain the components of both these budgets.

As per article 112 of the Constitution, the budget must distinguish the expenditures on revenue account from other expenditures (capital account). Therefore, the budget of Govt. of India is divided into Revenue Budget and Capital Budget, which are further divided into receipts budget and expenditure budget.

The following are major differences between revenue budget and capital budget. 

REVENUE BUDGET

Revenue Receipts: Those receipts of the government which neither creates a liability nor reduces the assets (physical or financial) of the government. Example: Various direct and indirect tax receipts and interest, fee, dividend from PSUs 

Revenue Expenditure: Those expenses of the government which neither creates any asset (physical or financial) nor reduces any liabilities of the Government. Example: Salary, pension, subsidy, interest payment etc. 

CAPITAL BUDGET

Capital Receipts: Those receipts of the government which either creates liability or reduces the assets (physical or financial) of the Government. Example: Disinvestment, Loans & Various Public A/c receipt. 

Capital Expenditure: Those expenses of the government which either creates assets (physical or financial) or reduces liabilities of the Government. Example: Infrastructure spending, establishment of new PSUs, debt repayment. 

1. Capital receipts: Loans from the general public, foreign governments and RBI form a major part of capital receipts. 

2. Capital expenditure: Expenditure on the development of machinery, equipment, building, health facilities, acquisition of assets like land, research & development, education, etc.

3. Revenue receipts are divided into tax and non-tax revenue.

4. Revenue expenditure is the payment incurred for the normal day-to-day running of government departments and various services that it offers to its citizens.

The components of budgets are an important part of maintaining control of a government’s finances and are a means of achieving the financial reporting objective of accountability.