Consider the following statements:
- I.Capital receipts create a liability or cause a reduction in the assets of the Government.
- II.Borrowings and disinvestment are capital receipts.
- III.Interest received on loans creates a liability of the Government.
Which of the statements given above are correct?
Answer & explanation
Answer: (a) I and II only
A capital receipt either creates a liability (borrowing must be repaid) or reduces the government's assets (selling PSU shares). Interest the government earns on loans it has given is non-tax revenue: it creates no claim on the government, so III is wrong.
- ✓ I NCERT defines capital receipts as all receipts that create a liability or reduce the government's financial assets.
- ✓ II Fresh loans create a liability to repay, and disinvestment (sale of PSU shares) reduces financial assets, so both are capital receipts.
- ✗ III Interest receipts on loans given by the government are non-tax revenue, a revenue receipt that does not lead to any claim on the government.
Remember · Capital receipt = creates liability or reduces assets (borrowings, recovery of loans, disinvestment). Revenue receipt = no claim on government (taxes, interest, dividends, fees).
📘 Read it in NCERT: Class 12 Introductory Macroeconomics, Ch 5 (practise this chapter) · Class 12 Introductory Macroeconomics, Ch 5 (practise this chapter) · Class 12 Introductory Macroeconomics, Ch 5 (practise this chapter)
Sources
- NCERT Class 12 · Introductory Macroeconomics, Chapter 5 “All those receipts of the government which create liability or reduce financial assets are termed as capital receipts.”
- NCERT Class 12 · Introductory Macroeconomics, Chapter 5 “Capital Receipts: The government also receives money by way of loans or from the sale of its assets. Loans will have to be returned to the agencies from which they have been borrowed. Thus they create liability.”
- NCERT Class 12 · Introductory Macroeconomics, Chapter 5 “Non-tax revenue of the central government mainly consists of interest receipts on account of loans by the central government, dividends and profits on investments made by the government”
Question and answer: UPSC's official GS Paper I (2025, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). ·