Capital Receipts: Important Details and What You Should Know

Capital receipts are non-business income that either reduces the assets or increases the liabilities of a business. Simply put, these are receipts for income generated through occasional capital activities and not routine operating activities.

It is also a written record of payment made in exchange for goods or services. Because of the capital nature of these receipts, they are a part of the balance sheet of an organisation and not the profit and loss statement. 

Read on to better understand capital receipts with examples, their types, features, and differences from revenue receipts. 

What are Capital Receipts? 

These receipts help in maintaining a business’s cash inflows from financial activities apart from business operations. These are not the business’s main source of income and may lead to reduced assets or increases in liabilities. You must record these receipts on accrual basis, and since they are non-recurring, you cannot use them for the distribution of profits. 

Types of Capital Receipts

These receipts primarily fall into two categories, as stated below: 

• Debt Capital Receipts: This is when they are generated from borrowing outside of organisation capital. It leads to an increase in liability on the balance sheet, as the income must be repaid with interest. 
• Non-Debt Capital Receipts: This is when they are generated not from borrowing but from selling or liquidating fixed assets. As such, there’s no increase in liability but a reduction in assets. 

Features of Capital Receipts

Knowing these features will help you distinguish these receipts from other capital gains.

• These receipts are non-recurring and from non-operational activities
• They either reduce the fixed assets of a company or increase the liabilities 
• Since they are not related to business activities, they have no effect on profit and loss  
• They do affect a company’s balance sheet 

Capital Receipts Example

Here are some other financial activities that fall under this category:

• Sum received from the insurance company after a claim 
• Funds received from the sale of company stocks or shares
• Returns from equity investment 
• Interest earned from fixed deposits 
• Cash received from an investor 
• Funds from debentures and other debt instruments
• Funds from the sale of land, workspace, plant, furnishing, equipment, tools, fixtures, etc. 
• Government grants 
• Funds from savings schemes like Kisan Vikas Patra, Sukanya Samriddhi Scheme, National Saving Certificates, etc. 

Differences Between Capital and Revenue Receipts

As opposed to capital receipts, revenue receipts are income generated from the key resource for a company. Here are the differences between them:

Particulars	Capital Receipts	Revenue Receipts
Meaning	Funds generated from the financial activities	Funds generated from the operational activities
Example	The amount received from the loan, disinvestment, insurance claim, etc.	The amount received from sales, services, and other day-to-day activities
Nature of Funds	They are non-recurring	They are recurring
Shown in	They are recorded in the balance sheet	They are recorded in the income statement
Impact on profit	They do not impact the business’s profit or loss	Revenue generated from business activities directly affects the profit
Term	They have short-term benefits for the company	This has long-term benefits for the company
Impact on Financial Statements	These show an increase in the cash flow and liabilities	These result in an increase or decrease in the company’s income
Tax	Usually, they are not subject to income tax, but in some cases, capital gains tax may apply	These are subject to income tax

After knowing these differences, it’s easy to understand the role of capital and revenue receipts in tracking a business’s cash flow. A lucrative alternative to get funds for maintaining cash flow is an Instant Personal Loan from Fibe. 

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FAQs on Capital Receipts

How many types of capital receipts are there?

These receipts can be classified into two types – debt and non-debt, depending on whether they increase the liability or reduce the assets of the company.

Why are capital receipts not taxable?

The taxation of these receipts depends on how they are generated. If they are from the transfer of capital assets, they will be subject to capital gain taxation. If there is no asset involved, they are not taxed.