Revenue and Capital Expenditure

The comparison between capital and revenue expenditure alludes to the difference within expenditures that leads to the construction of new assets and those that do not. It is possible to include in the current expenditure goods and services used during the accounting period; alternately, the allocation may be determined by whether or not a spending is "revenue producing. “The capital account's primary function is to display the public sector's gross and net capital formation during the accounting period (from April 1 to March 31).

The Indian Constitution mandates that the budget make a distinction between expenditures on the Revenue account and other expenditures. The Revenue Budget and the Capital Budget make up the government budget. The government's revenue receipts (taxes and other revenues) and expenditures incurred from these revenues make up the revenue budget. The proceeds of Union-imposed taxes and other duties make up tax revenues. The percentage of revenue spent is used to run government departments and various services charges for interest on government debt, among other things. In general, "Revenue expenditure" refers to expenditures that do not result in the creation of assets. All seven grants granted by the Financial Administration to state governments and other parties are also considered revenue expenditures. Payments and receipts for capital make up the capital budget. Loans from the public, also known as market loans, loans from the Reserve Bank of India and other parties through the sale of Treasury Bills, loans from foreign governments, and loans from the central government to state and union territory governments and other parties are the primary sources of capital receipts.

Any expenditure other than an operating one that has benefits that last for more than a year is considered a capital expenditure. The primary characteristic of capital expenditure is that at least a significant portion of the expenditure is made at one time, and the benefits are realized over the subsequent years at various times. To put it another way, capital expenditures are those that are made with the intention of creating tangible economic assets. Acquisition of assets like land, buildings, machinery, and equipment, as well as investments in shares and loans and advances provided by the central government to state and union territory governments, government companies, and others, are examples of capital expenditure.

Since the introduction of planning in India in 1951, capital expenditures made on a plan account have taken on a significant role. It also has an impact on the economy, depending on how quickly or how long the projects funded by capital expenditure produce economic benefits. Additionally, it has an effect on the Center's revenue budgets. Simply put, the difference between expenditures that result in the creation of new assets and those that do not is the difference between revenue and capital expenditure. The normal operation of government departments and various services, interest charges, and other costs are covered by revenue expenditure. On the other hand, the economy gains assets as a result of capital expenditure, or at least some of it.