Distinguish between Capital Budget and Revenue Budget. Explain the components of both these Budgets.

Sample Answer


Article 112 of Constitution requires the Government to present Annual Financial Statement (AFS) before the Parliament every financial year. The AFS should distinguish the expenditure on the revenue account from other expenditures.


Revenue Budget include Current Receipts and expenditure that can be met from these receipts. On the other hand, Capital Budget includes Assets and Liabilities.

CriteriaRevenue BudgetCapital Budget
ReceiptsNon-redeemable receiptsReceipts which create liability or reduce financial assets.
Examples of ReceiptsTax Revenue (Direct and Indirect Taxes): GST, Income Tax, Corporate Tax, Excise Duty, Customs duty (In Declining Order)Non-Tax Revenue: Interest Receipts, Dividends and Profits of PSUs, User Charges, External Grants etc.Debt Receipts: Market Borrowings.Non-Debt Receipts: Disinvestment, Recovery of Loans
ExpenditureRecurring: Incurred for purposes other than creation of AssetsNon-Recurring: Incurred for Asset creation
Examples of ExpenditureInterest Payments, Subsidies, Salaries and Pensions, Defence, Grants to the States for creation of Assets etc.Creation of Roads, railways etc. and loans to States.


The budget is not merely a statement of receipts and expenditures, but also a tool to promote economic development. For example, in the last 2-3 years, there has been much focus on capital Budget to revive the Indian economy.

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