Revenue receipts

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

Meaning

Revenue receipts are money the government receives that creates no liability and does not reduce any asset. The government never has to pay this money back, and nobody gets a claim on the government because of it. That is why they are called non-redeemable. They come in two kinds: tax revenue and non-tax revenue.

Formula: Revenue receipts = Net tax revenue + Non-tax revenue

Why it matters:

• Revenue receipts are the government's regular, recurring income. They pay for day-to-day spending such as salaries, subsidies and interest.
• Their size decides how much the government must borrow, because they enter the fiscal deficit formula directly.

Explanation

How to identify a revenue receipt: the two-question test

• Ask two questions about any receipt: 1. Does it create a liability? A liability is money the government must repay later. 2. Does it reduce an asset? An asset is something the government owns, such as PSU shares or a loan it has given.

• Both answers are No → it is a revenue receipt.

• Either answer is Yes → it is a capital receipt.
• Worked classification:

Receipt	Liability created?	Asset reduced?	Type
Income tax collected	No	No	Revenue (tax)
Dividend from a PSU	No	No	Revenue (non-tax)
Interest on a loan given to a state	No	No	Revenue (non-tax)
Repayment of that loan's principal	No	Yes	Capital (non-debt)
Selling G-secs (government bonds)	Yes	No	Capital (debt)
Sale of PSU shares	No	Yes	Capital (non-debt)

• Key trap: the interest on a loan is revenue. The return of the principal (the original loan amount) is capital, because the government's loan asset gets smaller.

Component 1: Tax revenue

• Tax: a compulsory payment to the government. The taxpayer gets no direct service in return.
• Direct taxes: the person legally liable pays the tax and cannot pass it on to anyone else.
• Personal income tax is progressive: the tax rate rises as income rises.

• Corporation tax (tax on company profits) is proportional: one flat rate (NCERT).

• Indirect taxes: collected from the seller, then passed on to the buyer through the price. Examples: customs duty (on imports and exports), Union excise duty (on goods made in India), and GST, which replaced service tax and many other taxes.

• "Paper taxes": wealth tax, gift tax and estate duty. They raised very little money and have all been abolished.
• Gross vs net tax revenue:
• Net tax revenue of the Centre = Gross tax revenue − States' share (devolution) − transfers to NCCD (National Calamity Contingent Duty) and similar funds.
• The Union Budget counts only net tax revenue in revenue receipts. The states' share is not the Centre's own money.

Component 2: Non-tax revenue

• Interest the Centre earns on loans it has given to states, PSUs and others.
• Dividends and profits from PSUs and public sector banks. This includes the RBI's surplus transfer.
• Fees and charges for services, licence fees and tolls. Telecom spectrum and licence charges are also counted here [2].
• Cash grants-in-aid from foreign countries and international organisations.

Worked example and what makes revenue receipts rise or fall

• Adding up the 2026-27 BE figures [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

• Link to the fiscal deficit (2026-27 BE) [2]:

• Fiscal deficit = Total expenditure − (Revenue receipts + Non-debt capital receipts)
• = ₹53,47,315 − (₹35,33,150 + ₹1,18,397) = ₹16,95,768 crore, which is 4.3% of GDP [2].

• So if revenue receipts fall short and spending stays the same, borrowing rises by exactly that amount.

• What makes them rise or fall:

• Economic growth: higher incomes and sales → more income tax and GST.
• Tax rates and tax base: the Finance Bill (the Bill that changes tax rates and tax laws each year) changes how much is collected. Budget revenue estimates already include its tax proposals.
• Devolution: a bigger states' share → a smaller net tax figure for the Centre.
• Windfalls: a large RBI dividend can push non-tax revenue up sharply in one year.

In India

• Constitutional basis: revenue receipts appear in the revenue budget, which is one part of the Annual Financial Statement under Art. 112. That is the Constitution's name for the Budget.
• Latest size:
• Revenue receipts are ₹35,33,150 crore (2026-27 BE): net tax ₹28,66,922 crore + non-tax ₹6,66,228 crore [2].

• They were ₹30,36,619 crore in 2024-25 (actuals) [2].

• NCERT Table 5.1: revenue receipts are 9.2% of GDP (tax 7.9% + non-tax 1.4%). The parts add to 9.3% because of rounding. Use the year printed in the NCERT table.

• Devolution to states: ₹15,26,255 crore (2026-27 BE) is shared with states. That is why the Centre's net tax revenue is lower than gross tax revenue [2].

• The 16th Finance Commission kept the states' share of the divisible pool at 41% for 2026-31 [2]. The divisible pool is central taxes minus cesses, surcharges and the cost of collection.

• Tax side is weak:

• Net tax revenue was 5.7% below budget (2025-26 RE), mainly because income tax and GST fell short [2].
• Income tax was budgeted at ₹14,38,000 crore but revised to ₹13,12,000 crore (2025-26) [2].

• Gross tax revenue is budgeted to grow 8% (2026-27 BE), while nominal GDP is expected to grow 10% [2]. So tax revenue is growing more slowly than the economy.

• Non-tax side is strong:

• Non-tax revenue was budgeted at ₹5,83,000 crore (2025-26 BE), with dividends forming 55.7% of it [3].
• It rose to ₹6,67,662 crore (2025-26 RE), 14.3% above budget [2]. The reasons were higher dividends and surplus from the RBI, nationalised banks and financial institutions, plus higher telecom receipts [2].

• About 59% of non-tax revenue (₹3,91,000 crore) is budgeted to come from dividends and profits (2026-27 BE) [2].

• RBI transfer law: under Section 47 of the RBI Act, 1934, the RBI first sets aside money for bad debts, depreciation and other needs. It then pays the balance of its profits to the Central Government [4].

• GST: in force from 1 July 2017 under the 101st Constitution Amendment (2016), which inserted Art. 246A. CGST is budgeted at ₹10,19,020 crore (2026-27 BE) [2].

Don't confuse with

• Capital receipts: these either create a liability (such as borrowings) or reduce an asset (such as disinvestment or loan recovery). Revenue receipts do neither.
• Revenue expenditure: this is the spending side of the revenue budget (salaries, subsidies, interest). Revenue receipts are the income side. The gap between the two is the revenue deficit.
• Gross tax revenue: this includes the states' share. Revenue receipts include only the Centre's net tax revenue, after devolution and NCCD transfers.
• Non-debt capital receipts: disinvestment and recovery of loans also create no debt, but they reduce an asset. So they are capital receipts, not revenue receipts. Both still lower the fiscal deficit.

Prelims Hooks

• Revenue receipt = creates no liability AND reduces no asset. It is non-redeemable. Its two parts are tax and non-tax revenue.
• Interest received on loans given by the Centre = non-tax revenue. Recovery of the loan principal = non-debt capital receipt. This is a classic "which of the following" trap.
• The RBI's surplus transfer is non-tax revenue (dividends/profits), paid under Section 47, RBI Act 1934 [4]. It is not a tax and not a capital receipt.
• The Union Budget shows tax revenue net of the states' share. Net tax revenue = Gross tax − devolution − NCCD transfers.
• Revenue receipts are ₹35,33,150 crore (2026-27 BE), of which non-tax revenue is ₹6,66,228 crore [2].
• Fiscal deficit = Total expenditure − (Revenue receipts + Non-debt capital receipts).

Mains Points

• Quality of revenue receipts: steady taxes vs volatile windfalls.
• In 2025-26 RE, net tax revenue was 5.7% below budget, while non-tax revenue was 14.3% above budget, mostly from dividends [2].
• A large RBI dividend can hide a tax shortfall. But RBI profit changes from year to year, so a fiscal plan built on it is fragile.

• The lasting answer is a wider tax base and tax buoyancy (tax revenue growing faster than GDP). Right now gross tax is budgeted at 8% growth against 10% nominal GDP growth (2026-27 BE) [2].

• Interest burden on revenue receipts.

• Interest payments take about 40% of revenue receipts (2026-27 BE) [2].
• More borrowing today → higher interest tomorrow → less revenue left for health, education and capital spending.

• Stronger revenue receipts are needed to reach the 16th FC's recommended Centre fiscal deficit of 3.5% of GDP by 2030-31 [2].

• Fiscal federalism (GS-II link).

• Cesses and surcharges fall outside the divisible pool, so the Centre keeps all of them.
• If the Centre relies more on them, states get a smaller effective share of central revenue, even though the formal share stays at 41% (2026-31) [2].

Related concepts

• Revenue budget
• Capital budget
• 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