question_answer

Classify the following as revenue receipts and capital receipts. Justify your answer.

(i)  Profit of public sector undertakings.

(ii) Market borrowing by the government.

(iii) Income from sale of its share in public sector undertakings.

(iv) Income from sale of spectrum.

Answer:

(i) Profit of public sector undertakings is a revenue receipt, because it neither creates liability nor reduces assets of government. (ii) Market borrowing by government is a capital receipt, because it creates a liability for the government in the form of borrowing from public. (iii) Receipt/Income from sale of its share in public sector undertaking is a capital receipt, as it causes reduction in assets of the government. (iv) Income from sale of spectrum is a non-tax source of revenue receipt, as it does not lead to reduction in assets and does not create liability for the government.