The Government of India classifies its receipts into two main categories: revenue receipts and capital receipts. Revenue receipts do not create any liability or lead to the sale of government assets and are thus termed non-redeemable. These are further classified into tax revenue and non-tax revenue. Tax revenue includes direct taxes such as personal income tax and corporation tax, and indirect taxes such as excise duties, customs duties, and service tax. Progressive income tax helps achieve redistribution by taxing higher income earners at higher rates, while excise duties vary based on the nature of goods — with luxuries taxed more heavily than necessities.

Non-tax revenue comprises interest income, dividends from PSUs, fees for services, and grants from foreign entities. In contrast, capital receipts are those that either create liabilities or reduce financial assets. These include borrowings and disinvestment of government stakes in PSUs. Capital receipts can be debt-creating (like loans) or non-debt creating (like asset sales).

On the expenditure side, revenue expenditure refers to the government’s routine expenses — including administrative costs, interest payments, defence, and subsidies. This is further divided into plan and non-plan expenditure, though this classification has been criticized for misallocating resources. The largest component of non-plan revenue expenditure is interest payments. Capital expenditure, on the other hand, leads to the creation of assets and includes investment in infrastructure, loans to states, and acquisition of equipment.

To ensure responsible budgeting, the Fiscal Responsibility and Budget Management Act (FRBMA) mandates the presentation of three key policy statements: the Medium-term Fiscal Policy Statement, the Fiscal Policy Strategy Statement, and the Macroeconomic Framework Statement. These guide the government's fiscal planning and reflect its commitment to economic sustainability.