How does the Union Government earn money?

Amidst all the analysis about fiscal deficits, budget etc, the fundamental question about how the Union Government of India earns its revenues gets ignored. This post examines the revenue aspect of the budget.

All the revenue that the Union Government earns can be classified into three buckets

  • Tax Revenue
  • Non-Tax Revenue
  • Capital Receipts

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Tax Revenue:  Tax revenue is the largest source of revenue for the Union. The major heads under tax revenue include

  • Corporation Tax – This is the tax levied on the income of Companies under the Income-tax Act, 1961
  • Income Tax – This is a tax on the income of individuals, firms etc. other than Companies, under the Income-tax Act. This also includes Securities transaction Tax
  • Wealth Tax – This is a tax levied on the specified assets of certain persons including individuals and companies, under the Wealth-tax Ac
  • Customs – Revenues earned through taxes imposed on imported goods
  • Union Excise Duties
  • Service Tax – Taxes on service transactions(at hotels,
  • Taxes from Union Territories – comprises of taxes collected by UT Governments without Legislature and include items of taxes normally collected by States. These taxes collected by UTs accrue to Central Government.

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Non-Tax Revenue: The various forms of Non-Tax revenue includes

  • Interest receipt – This includes the interest earned by the Union from loans to states, loans to Union territories, interest payable by the Railways and several other smaller loans advanced by the Union
  • Dividends and profits – This comprises of dividends and profits from public sector enterprises and surplus of the Reserve Bank of India that is transferred to Union.
  • Fiscal Services
  • General Services – Fees and other revenues earned by the Union through various general services that it provides. Eg., Central police forces supplied by the Union to States etc.)
  • Social and Community Services – Fees and receipts earned through social and community services. Eg., entry fees collected at museums.
  • Economic Services(including Railway revenue) – Revenue earned through economic services delieverd by the government Eg., royalty on Oil and Gas produced from the Offshore fields
  • Grants-in-aid and Contribution – Grants received from external sources
  • Non-Tax revenue of Union Territories – The receipts of the Union Territories (without legislature) mainly relate to administrative services; sale of timber and forest produce mainly in Andaman and Nicobar Islands; receipts from Chandigarh Transport Undertaking and receipts from Shipping; Tourism and Power 

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Capital Receipts: Capital Receipts include

  • Non Debt Capital Receipts
  • Debt Receipts

Non Debt Capital Receipts include

  • Recoveries of Loans and Advances – Loans recovered from states and union territories
  • Miscellaneous Capital receipts – receipts on account of disinvestment of part of government equity in central Public sector Enterprises

Debt receipts are those receipts that the Union receives for the current year under the explicit assumption that it is a temporary receipt which acts as a liability on the part of the government.

  • Borrowings
  • Securities against Small Savings
  • State Provident Fund
  • Other Receipts
  • External Debt

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(All the information contained herein, including most of the definitions, is taken from the Union budget documents for 2015-16)

Author’s note: A big shout out to Karthik Dinne for pointing out a few errors in the graphs in the previous update

Varun Ramachandra is a policy analyst at Takshashila Institution He tweets @_quale

 

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