Consider the following statements : I. Capital receipts create a liability or cause a reduction in the assets of the Government. II. Borrowings and disinvestment are capital receipts. III. Interest received on loans creates a liability of the Government. Which of the statements given above are correct?

(a) I and II only ✓ UPSC's answer
(b) II and III only
(c) I and III only
(d) I, II and III

Why the answer is (a)

• In the Union Budget, receipts are classified as revenue or capital by their effect on the government's balance sheet.

• Statement I is correct: capital receipts either create a liability (borrowings) or reduce an asset (sale of shares in PSUs, recovery of loans).

• Statement II is correct: market borrowings, external loans and small-savings deposits create liabilities, and disinvestment reduces the government's assets — both are capital receipts.

• Statement III is wrong: interest received on loans given by the government is a regular income that creates no liability and reduces no asset; it is a revenue receipt (non-tax revenue).

• Hence I and II only, option (a).

Why the other options are wrong

(b) II and III only: Statement III is wrong: interest received is a revenue receipt, not a liability.
(c) I and III only: Statement III is wrong; statement II on borrowings and disinvestment is correct.
(d) I, II and III: Statement III is wrong, so all three cannot be correct.

Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2025, held on 25 May 2025. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.