 "Budget 2025: Decoding tax and non-tax revenue and why they matter")
As India gears up for the Union Budget 2025, understanding how the government earns its revenue is crucial. The revenue is broadly classified into two streams: tax revenue and non-tax revenue, both of which are essential for funding the country’s developmental and welfare initiatives.
Tax revenue: The backbone of government earnings
Tax revenue is the income collected by the government through taxes imposed on individuals, businesses, and transactions. It constitutes the lion’s share of the government’s income and directly reflects economic activity and the government’s ability to mobilise resources.
Tax revenue includes:
Direct taxes: These are paid directly by individuals and businesses, such as income tax, corporate tax, and capital gains tax. These taxes are administered by the Central Board of Direct Taxes (CBDT) under the Income Tax Act, 1961.
For example, you earn a salary of Rs 50,000 per month. A portion of your income is deducted as income tax and goes directly to the government. Similarly, companies pay corporate tax on their profits.
Indirect taxes: These are levied on goods and services and include GST, customs duties, and excise duties.
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For example, when you buy a smartphone, the price includes GST. Similarly, when imported goods like cars or gadgets are brought into India, customs duty is added to their price.
Cess and surcharges: These are special levies aimed at specific objectives, like the education cess or health surcharge, which also contribute to this category.
For example, you might notice an ‘education cess’ on your tax slip or a surcharge on luxury goods like expensive cars. These funds are earmarked for specific purposes, like education or infrastructure development.
Income from tax revenue is used by the government to finance expenditures like infrastructure, social welfare, defence, etc.
Non-tax revenue: A supplemental boost
Non-tax revenue, though smaller in share, is a recurring income which plays a vital role in supplementing government finances. Although there are many sources of non-tax revenue, these are some of its key components:
Dividends and profits: Earnings from government investments in public sector undertakings and financial institutions.
For example, if the government owns shares in a company like SBI or ONGC, it earns a part of their profit as dividends, just like you might earn dividends on your investments in shares.
Interest receipts: Income from loans given to states or public enterprises.
For example, if you lend money to a friend and they repay you with interest, that’s similar to the government earning interest on loans it provides to states or public enterprises.
Fees and charges: Revenue from administrative services, such as passport issuance or penalty collections.
For example, when you apply for a passport or pay a fine for a traffic violation, that money goes into the government’s revenue as fees or penalties.
Royalty and rent: Earnings from the use of natural resources like coal, oil, and minerals.
Think of this as the rent you pay for staying in a house. When companies extract oil, coal, or minerals from Indian land, they pay a "royalty" to the government, just like rent for using those natural resources.
Other receipts: Proceeds from asset sales, spectrum auctions, and external grants.
For example, if you sell an old car, you earn money from that sale. Similarly, the government earns revenue by selling assets like land, old buildings, or even auctioning telecom spectrum for mobile networks.
Income generated from non-tax revenue is used by the government to supplement its expenditure, but is often more focused on specific projects or purposes. Examples include Reserve Bank of India's (RBI) surplus transfer and licence fees and spectrum usage charges paid by telecom operators.
Share of tax and non-tax revenue in government earnings
As per the Budget at a Glance 2024-2025 document, the Indian government's revenue receipts for the fiscal year 2024-25 are projected as follows:
Total revenue receipts: Rs 31,29,200 crore
Tax revenue: Rs 25,83,499 crore (83 per cent)
Non-tax revenue: Rs 5,45,701 crore (17 per cent)
Why it matters for Union Budget 2025
With increasing expenditure demands, especially in infrastructure, defence, and welfare schemes, both tax and non-tax revenues are under scrutiny. Tax revenue depends on economic growth and compliance, while non-tax revenue often hinges on strategic sales, efficient public sector management, and resource utilisation.
As Finance Minister Nirmala Sitharaman prepares to unveil the 2025 budget, stakeholders will closely watch how these revenue streams are optimised to meet India’s growing needs without imposing excessive burdens on taxpayers.