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 this transaction be treated by the Government of India?
Answer & explanation
Correct answer: option 1
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.