Sources of public revenue: tax and non-tax revenue of the Central Government

Economic Theory and Public Finance · Unit IV · Topic 12 of 17 · 5 min read

Public revenue and public receipts, Dalton's classification, administrative and commercial revenues, and the tax, non-tax and capital receipts of the Union.

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1. Public revenue and public receipts
2. Classification
3. Administrative revenues
4. Commercial revenues
5. Gratuitous revenues
6. Sources of revenue of the Central Government of India
How this is examined

Cases checked to exist. Read the judgment before quoting a holding.

Every case cited here has been checked to exist — the citation resolves and names the right parties. The propositions attributed to each case have not been verified line by line against the judgment. Case names link through to the full judgment: read it before quoting a holding in an examination answer, and never carry a proposition from notes into court on trust.

The examinable core. Public revenue is what the State receives without creating a liability to repay. Classify it (tax and non-tax; Dalton’s categories), explain administrative revenues (fees, licences, fines, special assessment, escheat), and list the main sources of the Union Government. “Explain the various sources of revenue of the Central Government” was the August 2024 essay; “Administrative revenues” and “Public revenue” were short notes in January 2026 and June 2025.

1. Public revenue and public receipts

In the wide sense, public revenue (public receipts) includes all income of the government, including loans and the proceeds of sale of assets. In the narrow sense, used by Dalton, public revenue includes only receipts that are not to be repaid — taxes, fees, prices and the like — and excludes borrowing. The Indian Budget follows this: revenue receipts are tax and non-tax revenue; borrowing and recoveries appear as capital receipts.

2. Classification

Tax and non-tax revenue

A tax is a compulsory payment to the State without any direct quid pro quo to the taxpayer. Non-tax revenue includes everything else that is not borrowed: fees, prices, fines, grants and dividends. The legal distinction between a tax and a fee is treated in tax: meaning, kinds, and tax distinguished from fee and cess.

Dalton’s classification

Taxes — compulsory, no direct benefit.
Prices — charged for goods and services sold by public enterprises (railway fares, postal charges, electricity). Voluntary and related to the service.
Others — fees, licence fees, fines and penalties, special assessment, escheat, gifts and grants.

Other classifications

Seligman: gratuitous revenue (gifts), contractual revenue (prices, rents), and compulsory revenue (taxes, fees, fines, special assessment).
By source: administrative, commercial and gratuitous revenues.

3. Administrative revenues

These arise from the administrative functions of government:

Fees — payment for a specific service rendered to the payer, such as court fees, registration fees, examination fees. Unlike a tax there is a quid pro quo, though the fee need not equal the cost.
Licence fees — payment for permission to do something (driving, possessing arms, running a liquor shop). The main object is regulation; revenue is incidental.
Fines and penalties — imposed for breach of law. The object is deterrence; the less revenue they bring, the better the law is obeyed.
Special assessment — a levy on owners of property whose value rises because of a public improvement nearby (a new road, a drainage scheme). Seligman defined it as a compulsory contribution levied in proportion to the special benefit derived.
Escheat — property of a person who dies without heirs or a will passes to the State.
Forfeiture — property confiscated by order of a court.

4. Commercial revenues

Prices charged by government enterprises for goods and services: railway fares and freights, postal and telecom charges, electricity tariffs, and dividends and profits of public sector undertakings. They are voluntary; the buyer pays only if he buys. Pricing policy may follow cost, profit or social objectives.

5. Gratuitous revenues

Gifts, donations and grants. Grants from one government to another are the most important: in India, grants-in-aid from the Union to the States under Articles 275 and 282 of the Constitution, and grants from foreign governments and international bodies.

6. Sources of revenue of the Central Government of India

A. Tax revenue

Direct taxes

Income tax on individuals, Hindu undivided families and firms, now levied under the Income-tax Act, 2025, in force from 1 April 2026 (replacing the 1961 Act).
Corporation tax on company profits.
Securities transaction tax and similar levies.

Indirect taxes

Goods and Services Tax — CGST on intra-State supplies (shared with SGST levied by the State) and IGST on inter-State supplies and imports, under the Constitution (One Hundred and First Amendment) Act, 2016, from 1 July 2017.
Customs duties on imports and exports.
Union excise duties, now mainly on petroleum products and tobacco, outside GST.

Most Union taxes form a divisible pool shared with the States under Article 270 on the recommendation of the Finance Commission (Article 280). The Fifteenth Finance Commission recommended 41 per cent of the divisible pool for the States. Cesses and surcharges are outside the divisible pool, which is why their growth is a matter of Centre–State dispute.

B. Non-tax revenue

Interest receipts on loans given to States, public enterprises and others.
Dividends and profits from public sector undertakings and public sector banks, and the surplus transferred by the Reserve Bank of India.
Fees and charges for services (passport fees, spectrum and telecom licence fees, broadcasting fees).
Receipts from Union Territories and from departmental undertakings.
External grants.

C. Capital receipts (not revenue in the narrow sense)

Borrowings — market loans (dated securities), treasury bills, small savings, provident funds, external loans.
Recovery of loans given earlier.
Disinvestment — sale of government shares in public enterprises.

Structure the essay by the Budget’s own heads. Revenue receipts (tax: direct and indirect; non-tax) and capital receipts (debt and non-debt). Examiners read it as an answer that knows how the Union Budget is laid out, which also links forward to the components of the budget.

How this is examined

As an essay: “Explain the various sources of revenue of the Central Govt.” (August 2024). As short notes: “Administrative Revenues” (January 2026) and “Public revenue” (June 2025). For the essay, define public revenue in both senses, give Dalton’s classification, then the Union’s sources under tax, non-tax and capital receipts with a line on the Finance Commission. For administrative revenues, the six items in section 3 with one example each are enough.

Now try the real questions: Economic Theory and Public Finance past question papers.