Which of the following best defines Capital Receipts?

Correct — C. NCERT's definition: 'All those receipts of the government which create liability or reduce financial assets are termed as capital receipts.'

A fresh loan must be repaid with interest, so it creates a liability. Disinvestment sells a PSU stake, so the government's assets shrink. Both are capital receipts → option (c).

Why the others are wrong

• (a)
  Receipts that increase government revenue permanently — A capital receipt is never a permanent gain. A loan must be repaid, and a sold asset stops earning for the government, which is the opposite of what this option claims.
• (b)
  Receipts that reduce financial liabilities of the government — Reducing liabilities, as in repaying debt, is the spending side. NCERT counts expenditure that reduces financial liabilities as capital expenditure, not as a receipt.
• (d)
  Receipts that do not impact government assets or liabilities — Receipts that leave assets and liabilities untouched, such as taxes and dividends, are revenue receipts. They create no claim on the government.

The budget splits receipts by what they do to the government's balance sheet. Revenue receipts, tax and non-tax, create no claim on the government and are non-redeemable.

Capital receipts either create a liability, as borrowing does, or run down an asset, as disinvestment and the recovery of loans do. That is why they can be debt-creating or non-debt-creating.

Key facts

• Capital receipts: borrowings and other liabilities, recovery of loans, and disinvestment proceeds.
• Borrowings are debt-creating capital receipts. Recovery of loans and disinvestment are non-debt-creating.
• Non-tax revenue includes interest receipts, dividends and profits, and fees for government services.
• Fiscal deficit = total expenditure − (revenue receipts + non-debt-creating capital receipts).

Common traps

• Calling disinvestment a revenue receipt because money comes in. It reduces the government's assets, so it is a capital receipt.
• Mixing up receipts and expenditure. Reducing liabilities, by repaying debt, is capital expenditure.

No directly related past PYQ was found.