Revenue budget

Also called: Revenue account · Topic: Government Budget, Fiscal Policy and FRBM · NCERT: Class 12, Ch 5 "Government Budget and the Economy"

Meaning

Revenue budget (also called the revenue account) is the part of the Budget that shows the government's revenue receipts and revenue expenditure. These are regular, recurring flows. They do not change what the government owns (assets) or what it owes (liabilities).

It shows whether the government's day-to-day income can pay for its day-to-day costs. If it cannot, the government has a revenue deficit and must borrow just to meet running costs.

Formula: Revenue deficit = Revenue expenditure − Revenue receipts

Explanation

How the revenue budget is separated from the capital budget

• The Budget is the Annual Financial Statement (Art. 112). It shows expected receipts and spending for one financial year (April–March).
• It has two parts:
• Revenue budget: receipts and spending that leave the government's assets and liabilities unchanged.

• Capital budget: receipts and spending that change assets or liabilities. Assets include roads, loans given and PSU shares. Liabilities are debts.

• The whole Budget covers one year, so the capital budget is also for "the current year". The real test is whether assets or liabilities change.

• The two-question test for any receipt: 1. Does it create a liability, so the government must repay it later? 2. Does it reduce an asset, for example when the government sells something it owns?
• If both answers are no, it is a revenue receipt and belongs in the revenue budget.
• If either answer is yes, it is a capital receipt.

Revenue receipts

• Revenue receipts are non-redeemable. The government never pays this money back, and nobody gets a claim on the government because of it.
• Tax revenue. A tax is a compulsory payment with no direct service given in return.
• Direct taxes: the legally liable person pays and cannot pass the tax on. Examples: personal income tax (progressive, meaning the rate rises as income rises) and corporation tax (proportional, one flat rate on profits).
• Indirect taxes: collected from a seller but passed on to the buyer through the price. Examples: customs duty, union excise duty and GST.

• The Union Budget shows tax revenue net of states' share. Net tax revenue = Gross tax revenue − States' share (devolution) − transfers to NCCD and similar funds.

• Non-tax revenue:

• Interest on loans the Centre has given to states, PSUs and others.
• Dividends and profits from PSUs and public sector banks, including the RBI's surplus transfer.
• Fees, licence fees, tolls, and telecom spectrum and licence charges [2].

• Cash grants-in-aid from foreign countries and international organisations.

• Revenue estimates already include the tax proposals in the Finance Bill, the Bill that changes tax rates and tax laws for the coming year.

Revenue expenditure

• Revenue expenditure is spending that does not create a physical or financial asset and does not reduce a liability. It pays for the normal running of government.
• Main items:
• Salaries, pensions and running costs of departments.
• Interest payments on past borrowing.
• Subsidies.

• Grants to states and other bodies. These count as revenue expenditure even when the states use them to build assets.

• Repaying the principal of a loan reduces a liability, so it goes in the capital budget. The interest on that loan is revenue expenditure.

What makes the revenue balance better or worse

• Better: strong tax collection, tax buoyancy (tax revenue growing faster than GDP), and a wider tax base, which was the aim of GST.
• Worse:
• Rising interest payments:
  • More borrowing → bigger interest bill every year → more of the revenue receipts is used up → less room for other spending.

• Tax shortfalls: revenue receipts fall below the budget, but salaries, interest and subsidies still have to be paid.

• Worked example (2026-27 BE) [2]:

• Net tax revenue: ₹28,66,922 crore
• Non-tax revenue: ₹6,66,228 crore

• Revenue receipts = 28,66,922 + 6,66,228 = ₹35,33,150 crore

• Revenue deficit, with illustrative numbers only: say revenue expenditure is ₹120 and revenue receipts are ₹100.

• Revenue deficit = 120 − 100 = ₹20.
• The government must borrow or sell assets just to pay running costs. Borrowing to pay for spending that creates no asset is the main worry.

In India

• Constitutional basis: Art. 112 requires the Annual Financial Statement. It separates the revenue account from the capital account.
• Institutions: the Ministry of Finance prepares the Budget. The RBI adds to non-tax revenue through its surplus transfer under Section 47 of the RBI Act, 1934. The RBI first makes provisions for bad debts and other needs, then pays the balance of its profits to the Centre [3].
• Latest size:
• Revenue receipts: ₹35,33,150 crore (2026-27 BE) [2].
• Revenue receipts: ₹30,36,619 crore (2024-25 actuals) [2].

• NCERT Table 5.1: revenue receipts 9.2% of GDP, made up of tax 7.9% and non-tax 1.4%. The parts add to 9.3% because of rounding.

• Recent pattern:

• Net tax revenue came in 5.7% below budget (2025-26 RE), mainly because income tax and GST fell short [2].
• Non-tax revenue came in 14.3% above budget (2025-26 RE) at ₹6,67,662 crore, due to higher dividends and surplus from the RBI, nationalised banks and financial institutions, plus telecom receipts [2].

• Dividends and profits make up about 59% of non-tax revenue (₹3,91,000 crore, 2026-27 BE) [2].

• Pressure on the revenue account: interest payments take about 40% of revenue receipts (2026-27 BE) [2].

• FRBM link: the FRBM Act, 2003 set targets to cut the revenue deficit, so that borrowed money would go to capital spending rather than running costs.

Don't confuse with

• Capital budget: covers receipts and spending that change assets or liabilities, such as borrowing, disinvestment and loan recovery. The revenue budget changes neither.
• Interest received vs loan principal recovered: interest on a loan given by the Centre is non-tax revenue, so it goes in the revenue budget. Recovery of the principal is a non-debt capital receipt.
• Revenue deficit vs fiscal deficit: the revenue deficit (Revenue expenditure − Revenue receipts) covers only the revenue account. The fiscal deficit = Total expenditure − (Revenue receipts + Non-debt capital receipts), which is the total borrowing for the year.
• Disinvestment vs revenue receipt: selling PSU shares brings in cash, but it reduces an asset. So it is a capital receipt, not revenue.

Prelims Hooks

• A receipt is a revenue receipt only if it neither creates a liability nor reduces an asset. Revenue receipts are non-redeemable.
• RBI surplus transfer = non-tax revenue, paid under Section 47, RBI Act 1934 [3].
• Interest payments and grants to states are revenue expenditure. Repaying loan principal is capital expenditure.
• The Union Budget shows tax revenue net of states' share. Net tax revenue ₹28,66,922 crore + non-tax ₹6,66,228 crore = revenue receipts ₹35,33,150 crore (2026-27 BE) [2].
• Trap: income tax, PSU dividends and interest received are all revenue receipts. Small savings (NSSF), T-bills, disinvestment and recovery of loans are NOT.
• Revenue estimates include the tax proposals of the Finance Bill.

Mains Points

• Quality of revenue receipts: tax revenue is steady and recurring. RBI dividends are volatile.
• In 2025-26 RE, non-tax revenue was 14.3% above budget while net tax revenue was 5.7% below it [2].

• Revenue plans that depend on windfalls are fragile. The long-term fix is a wider tax base and tax buoyancy.

• Debt trap in the revenue account:

• Borrowing to pay running costs → higher interest bill → interest already takes about 40% of revenue receipts (2026-27 BE) [2] → less money left for health, education and capital spending.

• FRBM-style consolidation needs the revenue deficit to shrink first. The 16th FC recommends a Centre fiscal deficit of 3.5% of GDP by 2030-31 [2].

• Using capital receipts to fill revenue gaps: NCERT criticises the use of disinvestment proceeds to meet day-to-day spending.

• Asset sold → one-time cash → spent on salaries and subsidies → the asset and its future income are both gone.
• Proceeds from selling capital assets should fund capital creation, not revenue expenditure.

Related concepts

• Capital budget
• Revenue receipts
• Tax revenue
• Non-tax revenue
• Capital receipts
• Debt-creating capital receipts
• Non-debt creating capital receipts
• Asset monetisation

Read more

• Budget receipts: revenue vs capital, tax vs non-tax, debt vs non-debt