Consider the following statements and choose the correct option:
Statement 1: Income tax and dividends from PSUs are classified as revenue receipts in the government budget.
Statement 2: Disinvestment in PSUs is also a revenue receipt as it brings income to the government.
Show answer & explanation
Correct answer: A
Explanation
The correct answer is option 1 i.e. Only Statement 1 is correct.
Statement 1 is correct, while Statement 2 is incorrect. Income tax collected by the government and dividends received from Public Sector Undertakings (PSUs) are treated as revenue receipts because they provide regular income to the government without creating any liability or reducing assets. These receipts are used for meeting day-to-day administrative and developmental expenses.
However, disinvestment in PSUs is classified as a capital receipt, not a revenue receipt. Disinvestment means the government sells a part of its ownership in public sector companies. Since it reduces the government’s assets and ownership stake, the money received is considered a capital receipt. Capital receipts generally arise either by creating liabilities or by reducing assets. Therefore, only Statement 1 is correct, and Statement 2 is wrong.