Revenue Receipts: Revenue receipts of the government can be understood as the equivalent of the income of a corporate or an individual.

Revenue receipts do not create any repayment obligation on the part of the government, unlike capital receipts. The government earns its revenue chiefly in 2 different ways: 1. Tax revenue [Direct Tax & Indirect Tax] 2. Non-tax revenues - raised by selling some goods and services to the people. Any shortfall in the governments revenue receipts in relation to its revenue expenditure leads to revenue deficits, one of the 3 important measures of deficit that economists and investors look at in order to gauge the health of the economy and how well it is being managed. Direct Taxes: It is made up of: (a) Corporation tax (b) Personal income tax (c) Wealth tax Indirect Taxes: It comprises: (a) Excise duty levied on domestic industrial production (b) Customs duty imposed on the import of goods from other countries and export duty levied on export of some goods, and (c) Service tax levied on service provided by one person or company to another, such as insurance, advertising, brokerage, etc. Gross Tax Revenue = Direct + Indirect taxes Net Tax Revenue = Gross Tax Revenue States shares of Gross Tax Net tax revenue is the single largest source of revenue of the Union Government accounting, at an average in the last few years, for more than 70% of the total revenue receipts of the government. The balance comes from non-tax revenue, i.e. from revenue items other than taxes. Also, tax revenue currently accounts for approximately 40% of the governments total receipts of money in a year. States Share of Gross Tax Revenue: A portion of the gross tax revenue collected by the Union Government is distributed to the various states. The portion distributed is based on the recommendations of the Finance Commission appointed by the President of India once in every five years, which recommends the devolution of non-plan revenue resources between centre and the states. In the last few years, this states share of the gross tax revenue has been approximately 25%. Capital Receipts: It includes: (a) Borrowings and other liabilities, namely loans raised by the Centre from the market, from the RBI and other financial institutions, through sale of Treasury Bills and government securities, and loans received from foreign governments form one part of capital receipts; (b) Recovery of loans earlier granted by the Centre to State governments and Union Territories; and (c) Proceeds from disinvestment of the governments stake in Public Sector Undertakings. Of the main sources listed above, borrowings and other liabilities is by far the largest component, currently forming more than 80% of capital receipts. Capital receipts currently form a little over 40% of the governments total receipts.

In addition to the above market borrowings, the government incurs liabilities in encouraging people to save through such avenues as for public provident fund (PPF) and small savings schemes such as post office savings deposits. All moneys collected through such schemes go into the National Small Savings Fund (NSSF), of which 75 percent are invested in various state government securities and the balance in central government securities, which become its other liabilities. Total Expenditure One way the Union Budget classifies the total expenditure is: 1. Revenue Expenditure, which forms more than 80% of the total expenditure; Expenditure on salaries, pensions, police and other services or interest payments, etc. and 2. Capital expenditure, which currently accounts less than 20% of the governments total expenditure. It is the money spent on the creation of public assets whether it be on roads or dams, etc. Each of the above expenditures is further classified as: a. Plan Expenditure; and b. Non-Plan Expenditure. Money spent annually on projects taken up as part of the 5-year plans is categorised as the former; the rest comprises Non-Plan expenditure. Non-plan expenditure accounts for about three-fourths of the governments revenue expenditure. Non-plan Capital Expenditure Non-plan capital expenditure is the money spent by the central government in creating both physical and financial public assets. A major portion of the non-plan capital expenditure goes towards purchase of defence equipment. Loans granted to states, UTs, public sector enterprises and foreign governments are also items of non-plan capital expenditure, which create financial assets for the government. Non-plan capital expenditure is about 6% (varies from year to year) of the governments total expenditure. Non-plan Revenue Expenditure All expenses which the central government incurs in running and administering all its multifarious and far-flung activities and public services. The main components of non-plan revenue expenditure are: Interest payments on the governments borrowing and other liabilities. This is the single largest component of the non-plan revenue expenditure; Subsidies, including on food, fertiliser, kerosene and export promotion, are the next largest component of the central governments non-plan revenue expenditure; Pensions paid to various retired government employees Expenditure for maintaining central police forces, such as CRPF and ITBP; Grants made by central government to state governments, union territories etc. Expenses incurred in providing various social and economic services, such as education, health, agricultural research and extension services, transportation and communication services etc.

Non-plan revenue expenditure is the biggest item in governments total expenditure, accounting for twothirds of the latter. Plan Expenditure Money spent by the central government on programmes included in the 5-year plans is called plan expenditure. Some of this expenditure is incurred directly by the centre; other expenditure is in the form of central governments assistance for the plans of various states and union territories. Like all government expenditure, plan expenditure is also divided into two portions: 1. Plan capital expenditure which is money spent on creating assets; and 2. Plan revenue expenditure, which is in the nature of expenses that dont lead to any asset creation. Plan expenditure currently amounts to less than 30% of governments TOTAL EXPENDITURE. The relatively decline in the share of plan expenditure in the governments total expenditure has been a matter of great concern among economists since it curbs the extent of plan projects that the government can undertake.

Deficits
Deficits, as the meaning of the word itself suggests, mean shortfalls in government revenues vis--vis its expenditure. Deficits can be differently defined depending on what one is looking at. Primarily, three important and widely discussed deficits are: 1. REVENUE DEFICIT; [Currently, the central governments budget runs a revenue deficit; the governments revenue expenditure is almost 150% of its revenue receipts] 2. FISCAL DEFICIT; [Most economists hold that fiscal deficit by itself need not be bad. Some amount of fiscal deficit is, in fact, held to provide a growth stimulus to the economy. What worries them is if it goes on rising as a percentage of the GDP. In such a situation, inflation becomes a potent danger] 3. PRIMARY DEFICIT [Primary deficit is a measure for assessing the shortfall in the central governments current years revenue against its expenditure for the year. Thus, while fiscal deficit measures the total budgetary shortfall, primary deficit is arrived at by reducing the interest payable by the government from the fiscal deficit, since interest payments are a result of actions of the past rather than those of the ongoing year. Primary deficit serves to turn the spotlight on the financial implications of governments current budgetary actions, ignoring the accumulated sins of the past since there is little that can be done about liabilities incurred earlier. Primary deficit allows a scrutiny of the discretionary, or controllable, portion of the deficit]

Budget Headings
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. Revenue Receipts Tax Revenue (net to Centre) Non-tax Revenue Capital Receipts (5+6+7) Recoveries of Loan Other Receipts Borrowings and other Liabilities Total Receipts (1+4) Non-plan Expenditure On Revenue Account of which Interest Payments On Capital Account Plan Expenditure On Revenue Account On Capital Account Total Expenditure (9+13) Revenue Expenditure (10+14) Capital Expenditure (12+15) Revenue Deficit (17-1) Fiscal Deficit [16-(1+5+6)] Primary Deficit (20-11)