The government of India recovered a loan of Rs 20 crore from government of Karnataka. While preparing the budget of the current annual year, how will we treat this transaction?

Included in capital receipt

The correct answer is Option 1: Included in capital receipt

Here's why:

• Loan recovery: The recovery of a loan is considered a capital receipt because it is a receipt that increases the financial resources of the government without affecting its revenue or expenditure.
• Non-revenue nature: The recovery of a loan is not a revenue item because it does not represent the sale of goods or services.
• Capital nature: The loan itself was initially classified as a capital expenditure when it was disbursed. The recovery of this loan, therefore, is also considered a capital transaction.