Source Of Income

Sources of Income of Central Government

As we all know that India is a democratic country and the main aim of the government here is to increase the welfare of the people not the profit of the government. To increase the welfare of the people the Government of India has to start welfare oriented schemes. Welfare oriented schemes are not guaranteed by the good return to the Government.

Government of India retains a big role in economy. In aftermath of LPG reforms, it has pulled back substantially from private sector, yet its presence is unquestionable and desirable in social sector, defense and security, provision of public goods and services etc. It has huge bureaucracy which consumes enormous national resources. Further, in line with modern concept of Market Socialism government intervenes in case of market failures for which it needs to provide services or goods significantly below cost. In effect, government’s expenditure generally surpasses its revenue which results into Revenue or Fiscal deficit. In the first place, major source of government revenue is from taxation, but there are non-tax sources too. At last, government resorts to deficit financing to fulfill its commitments. All this happens under aegis of Finance Ministry.

Finance Ministry

This ministry is biggest subdivision of Government of India and has under it, largest number of departments (5). It also has one Minister of State. Departments under it are –

  1. Economic Affairs
  2. Expenditure
  3. Revenue 
  4. Financial Services 
  5. Disinvestment 

This ministry eclipses whole economic and financial system. All regulatory bodies and attached offices relating to economics and finance come under it.

The following points highlight the two main sources of government revenue in India.

A. Tax Revenue:

Union Excise Duties:

They are, presently, by far the leading source of revenue for the Central Government and are levied on commodities produced within the country, but excluding those commodities on which State excise is levied (viz., liquors and narcotic drugs).

The most important commodities from the revenue point of view are sugar, cotton, mill cloth, tobacco, motor spirit, matches and cement.

Customs duties include both import and export duties. These are the second-most important source of revenue for the Central Government.

Income Tax:

Income tax is at present another important source of revenue for the Central Government. It is levied on the incomes of individuals, Hindu undivided families and unregistered firms.

Corporation Tax:

The income-tax on the net profits of joint stock companies is called corporation tax.

Wealth Tax:

It is an annual tax on the net wealth of individuals and Hindu undivided families. It is a progressive tax.

Gift Tax:

It is a tax on gifts of property by an individual in his lifetime to future successors.

Capital Gains Tax:

It is applicable to capital gains resulting from the sale, exchange or transfer of capital assets.

Hotel Expenditure Tax:

Recently, a new tax has been levied on those who patronise high class hotels.

Tax on Foreign Travel:

Another new tax levied on foreign travel for conserving foreign exchange as well as to raise revenue.

B. Non-Tax Revenue:

Interest Receipts:

This largest non-tax source of Central Government’s revenue receipts is the interest it earns mainly on the loans it has advanced to State Governments, to financial and industrial enterprises in the public sector.

Surplus Profits of the Reserve Bank of India (RBI):

The surplus profits of the RBI is also a part of the revenues of the Central Government. In recent years, these have been quite substantial because of the large borrowing by the Government from the RBI against Treasury Bills for financing the Five-Year Plans.

Currency, Coinage and Mint:

The Government also derives income from running the Currency Note Printing Presses. Moreover, profits are made from the circulation of coins — this profit being the difference between the face value of the coins and their manufacturing cost.


The railways in India are owned and run by the Government of India. Accordingly, they pay a fixed dividend to general revenues, i.e., to the Central Government, on the capital invested in the railways. Besides, a part of the net profits made by the railways is also payable to the Central Government.

Profits of Public Enterprises:

Public enterprises owned by the Central Government, e.g., the Steel Authority of India (SAIL), Hindustan Machine Tools (HMT), Bharat Heavy Electricals Ltd. (BHEL), State Trading Corporation (STC). The profits of such Public Sector Units (PSUs) are another source of revenue for the Government of India.

Other Non-Tax Sources of Revenue:

The main source among them is the Departmental Receipts of the various ministries of the Central Government by way of fees, penalties, etc.

BPCS Notes brings Prelims and Mains programs for BPCS Prelims and BPCS Mains Exam preparation. Various Programs initiated by BPCS Notes are as follows:- For any doubt, Just leave us a Chat or Fill us a querry––

Leave a Comment