A Capital Receipts: Capital Receipts refer to those receipts of the government which (i) tend to create a lability or (ii) Causes reduction in its assets All the Capital receipts are broadly classified into three categories
(a) Recovery of loans: These are Capital receipts because they reduce financial assets of the government
(b) Borrowings: funds raised by the government form the borrowings are treated as capital receipts. Such receipts creates liability
(c) Other Receipts: Funds raised through disinvestment are included in this category. By this government assets are reduced.
B. Revenue Receipts: Any receipts which do not either create a liability or lead to reduction in assets is called revenue receipts. Revenue receipts consist of (1) Tax Revenue and (2) Non-Tax Revenue
Revenue receipts may be distinguished from Capital receipts as follows:
I. In case of revenue receipts, government is under no obligation to return the amount in future, while in case of capital receipts government is under obligation to return the amount alongwith interest.
II. Revenue receipts neither create liabilities nor cause any reduction in assets whereas capital receipts either create liabilities or reduce assets.