Income Tax Filing for AY 2024-25 is now open. File early for quicker refunds. Start Now eFile now

Revenue Deficit: What is Revenue Deficit, Formula, Implications

  • What is the meaning of revenue deficit?

  • What is the formula for the revenue deficit?

  • The implication of the revenue deficit

What is revenue deficit?

A revenue deficit happens when the government/ business lacks funds to run its daily operations. It results from spending more than what it earns from revenue sources. i.e., revenue deficit is the gap between net income and expenditure. However, a revenue deficit is not the same as a fiscal deficit, which is the gap between actual and budgeted income.

The gap between income and expenditure needs to be filled by loaning or selling assets. The business can lower its expenses on various fronts to reduce the revenue deficit. This includes reducing the costs of equipment and workers. The government can also increase its income by raising taxes.

What is the formula for the revenue deficit?

The formula for revenue deficit is as follows:

Total Revenue Receipts - Total Expenditures = Revenue Deficit, i.e., it is the situation in which RE is more than RR.

The revenue deficit is classified into two parts: tax revenue receipts and non-tax revenue receipts. A revenue deficit does not demonstrate a loss of revenue.; It only reflects the gap between net income and expenditure, which can disclose if the government or business can sustain its daily operations and essential needs. 

The implication of the revenue deficit

Understand the debt trap of a country or business by the implications of the revenue deficit written below: 

  • Inflation

  • National debt

  • Increase in liabilities

  • Decrease in government creditworthiness

  • Disinvestment

  • Lack of Social Welfare

  • Lack of Assets