Sources of revenue and expenditure of the Government of India

The economy of India, the sixth-largest in the world, is rapidly expanding. It is an unduly complicated process to meet the financial requirements of a country the size of India. Every year, the government publishes a plan for its revenues and expenses in the Union Budget. Nirmala Sitharaman, India’s finance minister, has set aside approximately Rs 34 lakh crore for the country’s budget needs in 2021. These funds were obtained from a variety of sources. This article will discuss the major sources of revenue for the Indian government. So, let’s see how the government generates revenue to manage the country.

What is Meant by the Public Revenue?

The government develops, discovers, and updates new sources of money regularly. The term “public income” or “public revenue” refers to the government’s total income from all sources. In the domain of public finance, public revenue plays a crucial role. Many functions are required of the government to ensure the well-being of the people. To do so, the government must spend a significant quantity of public money, which can be obtained by taxation. The quantity of public money that must be raised is determined by the need for public expenditure and the ability of the public to pay.

Public Revenue Types

Public revenue is one of the major sources of revenue for the Indian government. It is segregated into two types:

• Tax revenue
• Non-tax revenue.

Tax revenue

A tax is a legal requirement that individuals and businesses pay to the nation’s government without receiving any immediate benefit in return. The government imposes it on the people. Tax revenues can be broadly classified into direct and indirect taxes. 

Direct tax

A direct tax is paid directly to the institution that imposed it. Income tax, personal property tax, asset taxes, and real property tax are examples of taxes paid directly to the government by an individual taxpayer.

Indirect tax

Indirect taxes are gathered and paid to the government by one business in the supply chain (typically a supplier or retailer). But, they are reflected in the price as part of the purchase price of commodities or services. The tax is eventually paid by the consumer, who pays more for the goods. Examples are excise duties on liquor and tobacco, value-added tax (VAT), etc.  

There are several important types of tax revenue, some of which are:

• Service tax
• Excise duty
• Sales tax
• Customs duty
• Income tax.

These are only some of the taxes that a government collects from the people. 

Income tax: People earning income like salaries, wages, rent, profit, and interest are subject to income tax. 

Sales tax: The tax charged upon selling any goods is sales tax. When we buy something, a portion of our money gets transferred to the government. It is referred to as the sales tax. 

Service tax: The tax paid upon using a service, such as a telephone, is service tax.

Customs duty: When a product is exported or imported, customs duty is paid.

Excise duty: It is levied on the manufacturer of a product. 

Non-tax revenue

The government collects Non-tax revenues from means or sources other than tax revenues. The following are the key non-tax revenue streams for India’s central government:

• Administrative revenue

It arises as a result of government administrative services. The following are a few examples: 

• Government hospital fees, passport fees, court fees, education fees, etc. 
• Escheats (Income obtained by the government through the seizure of property with no legitimate claimant or successor).
• Fines: The government imposes penalties and fines on people violating the law.
• Licence fees and permits
• Profits generated from public sector undertakings.

• Commercial revenue

The government obtains it as prices paid by citizens for products and services provided by the government, like the railway services, electricity, tolls, tolls, etc. 

There are several channels through which the Indian government collects revenue. But, tax revenue is among the major sources of revenue for the Indian government. 

Government Expenditure

Government expenditure is also known as public expenditure. The central government, local authorities (like public corporations and municipalities), and the state government contribute to public expenditure. However, the central government is responsible for the majority of such expenses. In 2019, the Indian government spent more than 59 trillion rupees. By 2025, it is expected that this figure will have risen to more than 95 trillion rupees. Interest payments account for more than a quarter of this budget, with the military accounting for more than a tenth.

The expenditure of the Indian government can be segregated into:

• Development services

It includes the economic services as well as the social and community services. It includes strengthening and expanding the nation’s social infrastructure and human capital. Also, it is directed toward improving the economic infrastructure of a country. 

• Debt services

Another sort of government expense is interest on borrowed funds. Government units may borrow money to fund some of their activities. The interest on such funds is an expenditure the government unit must cover.

• Administrative services

This category includes expenditures on civil and administrative services, such as police, tax collection, and pensions.

• Defence services

They account for roughly 10% of India’s central government’s overall revenue expenditure.

Conclusion

The major sources of revenue for the Indian government are the GST and income tax. Both sources of taxation account for roughly 90 per cent of the government’s overall revenue. GST contributed about 57 per cent of overall tax revenue in 2021-22. The expenses met by the government for its maintenance and to safeguard the welfare of the society as a whole are referred to as public expenditure. In 2019, the Indian government spent more than 59 trillion rupees. The above article concerns the major sources of revenue and also the different expenditures of the Indian government.