Revenue Receipts/ Capital Receipts and taxability

Receipts received may be either of capital nature or revenue nature. While calculating the income of person only receipts of revenue nature are taken into account whereas the capital receipts being non-business income and treated as capital gain.

Capital receipts are the receipts which are not received in the ordinary course of business. Capital receipts are derived from the activities which are not part of the normal trading activities of the business. These are non-recurring receipts affect the financial position of the business. It appears in the Balance sheet as capital or liability.

The following are some of the capital receipts which are always exempt from tax:
• Any sum paid out of the income of HUF or out of the income from the impartible estate belonging to the HUF is exempt u/s 10(2).
• Any sum received from Life Insurance Policy including the allocated by way of Bonus.
• Money Receipt from Public Provident Fund.
• Commuted Pension received is exempt upto specified limit.
• Subsidy received for a capital project is not liable to tax.
• Scholarship granted to meet the cost of education.
• Income Tax Refund.
• Gift received from relatives.
• Any long term capital gain arising from transfer of specified securities.
Revenue receipts are receipt related to normal course of the business and hence, credited to Profit & loss Account. It affects the operating result of the business. It is derived from the sale of current or circulating assets.

Some examples of the revenue receipts which are exempt from tax:
• Any income received by way of Dividend.
• Agriculture Income u/s 10(1).
• Interest on PPF is exempt receipt.
• Income from partnership firm.

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