Union Budget 2025: Understanding Revenue Budget and Capital Budget

Finance Minister Nirmala Sitharaman will present the Union Budget 2025 in the Lok Sabha on February 1

Finance Minister Nirmala Sitharaman is set to present the Union Budget 2025 in the Lok Sabha on February 1, marking her the first finance minister to present eight consecutive Union Budgets. As the country anticipates her address, it’s essential to understand the key components of the government’s financial structure: the Revenue Budget and the Capital Budget.

 

What are Revenue Budget and Capital Budget?

The government’s budget is divided into two main parts: the Revenue Budget and the Capital Budget. Each serves a distinct purpose in managing the nation’s finances.

 

Revenue Budget

The Revenue Budget records the government’s income (revenue receipts) and the expenditure funded by these receipts. It includes:

 

1. Revenue receipts:

Tax revenues: These are earnings from taxes such as income tax, corporate tax, customs duties, and excise duties, levied by the Union government. 

Non-tax revenues: These come from sources like dividends from government investments, fees for services, and interest earned on loans extended by the government.

 

2. Revenue expenditure:

This refers to the spending required for the day-to-day operation of government departments and services.

It also includes subsidies, interest payments on debts, and grants to state governments or other organisations. Revenue expenditure does not result in the creation of long-term assets.

 

Revenue deficit: When revenue receipts fall short of revenue expenditure, a revenue deficit occurs, signalling that the government is spending more than it earns. Persistent deficits highlight financial imbalances and the need for corrective measures to align income with expenditure.

 

Capital Budget

In contrast, the Capital Budget focuses on the government’s capital receipts and payments, which are primarily tied to asset creation and fiscal stability.

 

1. Capital receipts

These include funds that either create a liability for the government or reduce its assets. Examples are:

• Loans raised from the public through market borrowings or Treasury Bills.
• Loans from foreign governments or institutions.
• Recoveries of loans previously granted by the central government to states, Union Territories, or other parties.

 

2. Capital expenditure:

This involves spending on acquiring assets like land, buildings, machinery, and equipment.

Investments in government companies, corporations, and infrastructure projects also fall under this category.

Additionally, loans and advances granted by the central government are considered part of capital expenditure.

 

The Capital Budget is critical for infrastructure development, boosting economic productivity, and ensuring long-term economic growth.

 

Why is this distinction important?

Under the Indian Constitution, the government is required to differentiate between expenditure on revenue accounts and other expenditures. This classification helps provide clarity on how funds are utilised—whether for immediate operational needs or long-term asset creation — and ensures transparency in fiscal management.

 

As the Union Budget 2025 unfolds, understanding these components can offer deeper insights into the government’s financial priorities and strategies to drive economic growth.