Examkin

Question

Difficulty: MediumFiscal Policy, Union/State Budgeting, Public Finance, and Taxation Structure

Consider the following receipt heads under the Union Budget of India:

1. Dividends and profits earned from Public Sector Enterprises (PSEs)
2. Interest receipts on loans extended by the Central Government to State Governments
3. Disinvestment receipts from the liquidation of government equity in public undertakings
4. User charges and fees collected for administrative services

Which of the components listed above are classified as Non-Tax Revenue Receipts of the Central Government?

  1. 1, 2, and 4 onlyAnswer
  2. B
    1 and 3 only
  3. C
    2, 3, and 4 only
  4. D
    1, 2, 3, and 4

Answer

Dividends from PSEs, interest on loans to State Governments, and administrative fees and fines (1, 2, and 4) are Non-Tax Revenue Receipts.
Revenue receipts of the government are divided into Tax Revenue and Non-Tax Revenue. Non-tax revenue includes interest receipts on loans given by the Union, dividends and profits from public sector undertakings, and user charges or fees. Disinvestment proceeds represent a sale of government assets and are categorized as non-debt capital receipts, excluding item 3 from revenue receipts.

Step-by-Step Solution

1
Define Revenue Receipts vs Capital Receipts
Revenue Receipts do not create any financial liability nor reduce government financial assets. Capital Receipts either create a liability (e.g., market borrowings) or reduce financial assets (e.g., recovery of loans, disinvestment).
Establishing the accounting boundary is necessary to categorize each receipt item correctly.
2
Classify items 1, 2, and 4
Dividends from PSEs (1), interest on loans given to States (2), and fees/fines (4) yield recurring income without diminishing financial assets or raising debt liabilities. Hence, all three belong to Non-Tax Revenue Receipts.
They satisfy both criteria of revenue receipts and are non-tax source inflows.
3
Classify item 3 (Disinvestment proceeds)
Selling government equity in public enterprises reduces public asset ownership. Therefore, disinvestment proceeds are Non-Debt Creating Capital Receipts.
Asset-reducing receipts fall strictly under Capital Receipts.

Key Concept

Classification of Union Budget Receipts (Revenue Receipts vs Capital Receipts)
Estimated Time:1m 15s
Rate this question

Topics

Fiscal Policy, Union/State Budgeting, Public Finance, and Taxation Structure