Explanation

Statement I is correct. Capital receipts are those receipts of the government that either create a liability or cause a reduction in financial assets. For example, borrowings create a liability because the government must repay them, while disinvestment reduces government assets by selling its stake in public sector enterprises. This is what fundamentally distinguishes capital receipts from revenue receipts.

Statement II is correct. Borrowings — such as loans from the RBI, foreign governments, or through issuance of government securities — and disinvestment proceeds from selling stakes in Public Sector Enterprises (PSEs) are both classified as capital receipts. They are recorded on the capital side of the Receipts Budget of the Union Government. Other capital receipts include recovery of loans, provident funds, and similar items.

Statement III is incorrect. Interest received on loans given by the Central Government to states or other countries is classified as a revenue receipt, not a capital receipt. It represents regular income for the government and does not create any liability. It falls under the category of non-tax revenue alongside profits, dividends, fees, and fines.

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Budget Receipts — Quick Reference:

Revenue Receipts are of two types — Tax Revenue and Non-Tax Revenue.

Tax Revenue is further divided into:
– Direct Tax (liability and burden fall on the same person) — includes Income tax, Corporation tax, Expenditure tax, Wealth tax, Estate duty
– Indirect Tax (liability and burden fall on different persons) — includes Sales tax, Custom duty, Excise duty, Service tax, Value Added Tax (VAT)

Non-Tax Revenue includes — Interest receipts, Profits and dividends, Fees and fines, External grants, Special assessment (or taxes)

Capital Receipts include — Recovery of loans, Disinvestment, Borrowings, Provident funds