• Notification Date: 20-01-2024
• Notification No: N/A

Source of Income for the Government – Know in Details

For an individual, the source of income is the salary or the profit from a profession or business. Sometimes, however, there is a gift of considerable value or an inheritance. Some people can loan money on interest or rent out a house or a shop. Many get income from stocks, mutual funds, etc. or from appreciation of assets such as property and gold. Those more enterprising than others can do moonlighting to earn a little extra on the side. But mostly and for most of the people, the chief source of money is the salary or the profit from business or profession. 

The income of the government is not much different, though it's meticulously defined under different heads. Like individuals' income is mainly from salary or profit, a government's income mainly comes from taxes though they are of various types. And then there are other smaller sources of income which accrue regularly. Since a government's budget is an elaborate exercise, each part of income is well defined to ensure the calculations of government finances and the budget are meticulous. 

The Main Source of Income in Union Budget 
The money the Union government gets is called receipts. These are of two types: Revenue and Capital.  

Revenue receipts are chiefly the taxes that the government collects, direct as well as indirect. Personal income tax and taxes on profit of private companies are the main direct taxes. They also include capital gains tax and wealth tax. The GST (the Centre's share in it) is an indirect tax. Then there are excise and customs duties collected by the Union government. 

Personal income and corporate tax collections are likely to rise to more than Rs 19 lakh crore in 10 years of Prime Minister Narendra Modi-led government. Driven by the increasing income of individuals, net direct tax collections after adjusting for refunds increased from Rs 6.38 lakh crore in FY 2013-14 to Rs 16.61 lakh crore in FY 2022-23. 

Indirect taxes, mainly the Centre' share in GST, too have been scaling a new peak every year. The trend is expected to continue in 2024 on the back of strong economic performance. The average gross monthly GST collection in 2023-24 stands at Rs 1.66 lakh crore and is 11 per cent more than that in the same period in the previous financial year. More tax revenue helps the government spend more and reduce fiscal deficit. 

Tax cuts or hikes are politically sensitive measures. Large cuts in corporate tax are generally unpopular and are seen as the government favouring the rich. But they could be needed to boost production and investment in a sluggish private sector. Personal income tax cuts, especially for the people at the bottom, are often aimed at reducing the impact of inflation on the salaried and small-business taxpayer. 

Selling and Borrowing 
But that's not all. There are non-tax revenue receipts too such as profit from public-sector undertakings (PSUs), interest on loans given by the government, fines and penalties, and foreign aid. Another major source of revenue receipts is fees on services provided by the government such as telecom spectrum. 
 
By definition, revenue receipts create no liabilities for the government, nor do they reduce its assets. But there are the receipts that do, and those receipts are called capital receipts. 

One example is the money that comes from disinvestment, the selling off the PSUs. Accrual of this money reduces the government's assets. Borrowings too are capital receipts since they create a liability of debt. In the budget 2023-24, borrowings constituted 34% of total receipts. They also signify the fiscal deficit, the gap between income and expenditure which the government fills mainly by borrowings. 

Disinvestment is another way of plugging the deficit but often the government is unable to meet its disinvestment targets set in the budget. One challenge is to find buyers who pay the right amount of money. 
 
Several times, disinvestment targets are stretched solely to fill the gap that remains after the government has projected all the income and borrowings.