ITR Filing Deadline Missed? Last chance to claim your tax refund.

Got a Tax Notice from the Income Tax Department?

Don't Worry! Our Experts Are Here to Help You Respond and Resolve

  • TrustedTrusted by 1 Million+ Users
  • User Rating4.9 Star User Rating
  • Secure2500 Cr. Taxes Saved Already

Income Tax Notice Assistance

linkedin
whatsapp

What Are Revenue Receipts And Capital Receipts?

Updated on: 03 Jun, 2024 11:13 AM

Capital receipts and revenue receipts are the earnings of the company, and through it, revenue is generated. Not all the receipts contribute towards the profit and loss in business. Receipts can be categorized as capital receipts and revenue receipts.

To some extent, we can say that revenue receipts affect the profit and loss of the business, and capital receipts don’t.
For a better understanding of the revenue receipts and capital receipts let’s discuss these terms in detail.

What Do You Understand by Revenue Receipts?

Revenue receipts are money earned by a business through its day-to-day operational activities. These are recurring in nature and directly affect the profit and loss of the business. Thus, the disclosure of revenue receipts are required to be made in the income statement of the company or organization.
In general terms, we can say that revenue receipts do not create any liability for the business nor does it reduces the assets. It simply suggests that goods or services have been delivered to the clients and in return, income has been received. Ultimately it is a source of cash inflow which leads to an increase in the total revenue of a company.


Examples of Revenue Receipts

Some examples of receipts of a routine nature i.e., revenue receipts in an organization are,

  • Money received for services provided to customers
  • Rent received
  • Discounts received from suppliers, vendors, or creditors
  • Dividend received
  • Interest earned
  • Commission received
  • Bad-debts recovered(if any)
  • Revenue earned by the sale of scrap material or waste, etc

Some Important Features of Revenue Receipts

  • Benefits from revenue receipts can be taken for a short period of time, i.e., one accounting or financial year.
  • As benefits from revenue receipts are for a short period of time, thus another feature comes that it is recurring in nature.
  • Revenue receipts come directly from the operational activities of a business.
  • It directly affects the profit and loss of business. As when revenue is received by a company it will either increase the profit or will contribute towards loss.
  • Disclosure is made under the Trading and Profit or Loss account and not in the Balance Sheet.

What Do You Understand by Capital Receipts?

Capital receipts are cash inflow in business arising from financial (capital) activities and not the operating activities of the business. These are receipts resulting from activities that are occasional or not of routine nature. Capital Receipts are not the regular or main source of income for an organization. Thus, it either creates a liability or reduces the assets for the business entity. And, because of its capital nature such receipts are shown in the balance sheet of a company and not the income statement or Profit and Loss account.
These receipts are recorded on an accrual basis (which means recording an income for which you have got the rights to receive, but the actual receipt has not yet occurred). Also, since capital receipts are non-recurring in nature, they can not be used for the distribution of profit, unlike revenue receipts.


Types of Capital Receipts

Capital receipts are divided into three groups-

  1. Borrowings
  2. Recovery of Loans and
  3. Other Capital Receipts
  1. BorrowingsIt includes the funds raised from outside to meet the expenditure incurred in the company. It is considered as the capital receipts because it creates liability for the company.
  2. Recovery of LoansSometimes the company separates a part of the asset to recover the loans in future, as a result, it decreases the assets of the company.
  3. Other Capital receiptsUnder this category of Capital Receipts, Disinvestment and Small Savings are covered.

Examples of Capital Receipts

  • Cash received from the sale of fixed assets
  • Amount received from Shareholders and debenture holders
  • Borrowings which includes loans, disinvestment, insurance claims, etc.

Features of Capital Receipts

  • Capital receipts are non-recurring in nature
  • Funds generated from capital receipts are from non-operating activities.
  • It either creates a liability or reduces the asset.
  • It has no impact on the income statement instead balance sheet is affected by the capital receipts.

Difference Between Capital Receipts and Revenue Receipts

S.No. Revenue Receipts Capital Receipts
1. Revenue receipts are generated from the operational activities of the business. Capita receipts are generated from the financial activities.
2. It affects the profit and loss of the business. It has no impact on the profit and loss of a business.
3. Revenue receipts are recurring in nature. Capital receipts are non-recurring in nature.
4. It is the amount received from the sale of normal day-to-day products or services of the company. Capital receipts result from any loan, disinvestment, insurance claim, etc.
5. Affect the Income Statement of the company. Capital receipts affect the Balance sheet.
6. Through revenue receipts distribution of profit is done. Profit distribution is not available through capital receipts.
7. It includes the Sale of products of business It includes the sale of fixed or financial assets.
8. Revenue receipts are one of the sources for creating reserves Capital receipts can not be used for creating reserve funds in the business.

What Do You Understand by Revenue and Capital Expenditure?

Revenue ExpenditureRevenue expenditure is short term in nature and it includes normal day to day expenditure that takes place during the operational activities of a business and expenses that are incurred during the repair and maintenance cost of a revenue-generating assets. These are recurring in nature as it covers all the expenses related to repainting, renewal and regular maintenance of the fixed assets which is being used for generating revenues.


Examples of revenue expenditures are

Amount spent on

  • Sale of a product
  • General and administrative expenses
  • Repairs and maintenance, etc

Capital Expenditure

On the other hand, Capital expenditure is incurred to avail the long term (more than 1 year) assets in the business. In general, we can say capital expenditures are for fixed assets that impact the productivity in the long run. As it is for the long run, so it is charged gradually through the depreciation method.


Examples of Capital Expenditures

Amount spent to acquire

  • Land
  • Building
  • Plant
  • Equipment
  • Furnishing
  • Fixtures etc

The main purpose of incurring capital expenditure is to increase the income-generating ability of a company.

Therefore, we can say that main purpose of incurring capital expenditure is to increase the ability of a company and generate earnings whereas revenue expenditure covers operational and maintenance cost of running the business, which is needed to retain the asset in working order.
Whether you have earned capital receipts or revenue receipts, it all adds up to form your annual income, which is subject to tax upon exceeding a certain threshold. Individuals eligible to pay taxes are required to file an ITR every year and pay taxes diligently to avoid any penalties and notices.
ITR filing for FY 23-24 has started, and filing now with the help of experts will not only help you file ITR on time but also ensure accurate ITR filing. Hire an online CA and File your ITR Now!


Frequently Asked Questions

Q- What is a capital receipt and revenue receipt?

Capital receipts are funds received from non-operational sources, such as the sale of long-term assets or loans taken from banks, and are recorded on the balance sheet. They are non-recurring and can significantly impact the financial position of a business or government. On the other hand, revenue receipts arise from the core business operations like sales or service income and are recorded on the income statement. These are recurring transactions that affect the enterprise's profit and loss within the financial year.


Q- What is the difference between capital receipts and revenue receipts?

Capital expenditure refers to the money a company spends to acquire new assets or enhance existing ones. Revenue expenditure is the money spent by a business to maintain daily operations. Capital expenses are for long-term benefits.


Q- What are the two types of revenue receipts?

These non-redeemable revenue receipts fall into two categories: tax revenue and non-tax revenue. Tax revenues, which are the most significant part of revenue collections, include direct taxes, and indirect taxes such as customs duties, excise taxes, and service taxes.


Q- What are some examples of capital revenue?

Examples of capital revenue include the proceeds from the sale of fixed assets, such as factories and buildings, or the sale of shares and debentures. It also encompasses money spent on improving existing assets to increase their life or reduce production costs, like converting hand-driven machines into power-driven ones. Additionally, capital revenue includes expenditures on the acquisition of intangible assets like patents and copyrights, which can enhance a company's earning capacity.


CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.