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Classification of Receipts

What are receipts?

A receipt is a written cognizance or acknowledgement that something of value has been transferred from one party to another. In addition to the receipts customers normally receive from vendors and service providers, receipts are also given in business-to-business entities, as well as stock market transactions. However, receipts are classified into 2 types:

  • Revenue receipts
  • Capital receipts

Revenue Receipts

Revenue receipts are those receipts that do not lead to a claim on the government. They are hence termed non-redeemable. They are classified into tax and non-tax revenues. Tax revenues, a vital component of revenue receipts, have for long term been bifurcated into direct taxes (personal income tax) and enterprises (corporation tax) and indirect taxes like customs duties (taxes imposed on commodities imported into and exported out of India), excise taxes (duties levied on commodities manufactured within the nation) and service tax. Other direct taxes such as gift tax, wealth tax and estate duty (now eradicated) have never brought a large amount of revenue and hence, are known as ‘paper taxes’.

Classification of Receipts

Capital Receipts

The government also gets money in terms of loans or from the sale of its assets. Loans must be given back to the agencies from which they have borrowed. Hence, they establish liability. Sale of government assets, such as sale of shares in Public Sector Undertakings (PSUs) which is known as Public Sector Undertakings disinvestment, minimize the total amount of financial assets of the government. Likewise, when government sells an asset, then it is understood that in future its earnings from that asset, will vanish. Hence, these receipts can be debt establishing or non-debt establishing. All the receipts of the government which establish liability or minimize financial assets are known as capital receipts. When government take loans it will mean that in future these loans will have to be given back and interest will have to be financed on these loans.

The above mentioned is the concept that is explained in detail about Classification of Receipts for the class 12 students. To know more, stay tuned to CoolGyan’S.