CHAPTER 11

Classification of Receipts and Expenditure in Government Accounts

217. General Rules of Classification. One of the most distinctive features of the system of Government Accounts in India is the minute elaboration with which the financial transactions of Government, under both receipts and pay- ments, are differentiated and classified.

218. The accounts of the various Governments in India are kept in the following three parts:-

Part I. Consolidated Fund

Part II. Contingency Fund}

of India or the State concerned.

Part III. Public Accounts

In Part I of the Account there are three main divisions, namely,

(1) Revenue,

(2) Capital, and

(3) Debt (comprising Public Debt and Loans and Advances).

The first division deals with the proceeds of taxation and other receipts classed as revenue and the expenditure therefrom, the net results of which re- presents the revenue surplus or deficit for the year. The second division deals with expenditure met usually from borrowed funds with the object either of increasing concrete assets of a material character or of reducing recurring lia- bilities, such as those for future pensions by payment of capitalised value. It also includes receipts of a Capital nature intended to be applied as a set off to Capital expenditure. The third division comprises loans raised by Government- loans of a purely temporary nature classed as ‘Floating Debt’ (such as Treasury Bills and Ways and Means Advances) as well as other loans classed as “Perma- nent Debt” and “Loans and Advances made by Government” together with repayment of the former and recoveries of the latter.

In Part II of the Account is recorded the transactions connected with the Contingency Fund set up by the Government of India or of a State under Article 267 of the Constitution.

In Part III of the Account, there are two main divisions, namely,

(i) Debt (other than those included in Part I) and Deposits, and

(ii) Remittances.

The first division comprises receipts and payments, other than those falling under Debt-heads pertaining to Part I, in respect of which Government insure liability to repay the money received or has a claim to recover the amounts paid together with repayments of the former and recoveries of the latter. The second division embraces all merely adjusting heads, under which appear remit- tance of cash between treasuries, and transfers between different accounting circles. The initial debits or credits to the heads in this division will be cleared eventually by corresponding receipts or payments either within the same circle of account or in another account circle.

7-2 Compt. A. G. 62219. Within each of the divisions mentioned in the preceding paragraph, the transactions are grouped into Sections which are further sub-divided into the Major heads of Accounts. The Sections are distinguished by letters of the alphabet, a single letter denoting the Revenue portion and a double denoting the Capital portion of a particular category of transactions: letter e.g., Section A denotes the revenue (and expenditure) grouped as ‘Principal Heads of Revenue and Section AA denotes the capital expenditure on works con- nected therewith. The Major heads in the Revenue and Capital divisions are numbered serially, Roman numerals being employed on the receipts side and Arabic on the disbursement side. No numbering is adopted for Contingency Fund and for Debt, Deposit and Remittance heads though these are also arrang- ed in Sections.

220. The Major heads which are the main units of classification are sub- divided into Minor heads and the Minor heads into Sub-heads and Detailed heads. Under each of these heads, the expenditure is shown distributed bet- ween “voted” and “charged” according as the expenditure is subject to the vote of Parliament or the State Legislature or is charged on the Consolidated Fund of India or of a State. The detailed classification of account heads used in Government accounts is given in the “List of Major and Minor Heads of Account of Central and States Receipts and Disbursements” which is printed separately as an Appendix to the Account Code Volume I.

NOTE. The Major and the Minor Heads and the Sub-heads prescribed for the classification of expenditure in the general accounts are not necessarily identical with the Grants, Sub-heads and other units of Grants and Appropriations which are selected by the Ministry of Finance or the Finance Department for the Demands for Grants and the Appropriation Accounts, but in general-a certain degree of corelation is maintained between the Demands for Grants and the Appropriation Accounts on the one hand and the general accounts on the other.

221. Classification of Capital Expenditure. Expenditure debitable to Capital may be financed from the following sources-

(a) Revenue,

(b) Borrowings, either-

(i) specific for a particular purpose, or

(ii) non-specific for all Government purposes, or

(iii) unfunded, and

(c) Sources other than revenue and borrowings e.g., accumulated balances.

For the purposes of accounts, (b) and (c) are grouped together, the capital expenditure from these sources being described as outlay financed outside the Revenue Account and being quite apart in treatment from expenditure met from revenue. On the other hand, capital expenditure met from revenue is accounted for separately under the appropriate major head within the Reve- nue Account. The purpose of recording capital expenditure within the Revenue Account as separate and distinct from revenue expenditure is almost always to enable accounts to be prepared according to commercial principles.222. Purpose of detailed Classification. The object of all this elaborate classification is to secure the utmost possible uniformity of accounting amid the immense volume and variety of the financial transactions of the Government in India, and thereby to render possible, not only reliable comparisons between the accounts of different Governments and periods, but especially the prepara- tion of budget estimates or forecasts of receipts and payments. Classification carried to this extent also compels each disbursing officer to a minute periodical review of the public receipts and payments in his charge, and so makes for effective financial control and economy.

223. Main Principle of Classification. Subject to the directions regulating inter-departmental transfers contained in Account Code Vol. I, and to any other rules or orders which have been or may be issued to regulate adjustments between Governments, the broad principle which governs classification gene- rally is that the head to which a receipt or payment belongs has closer reference to the department in which it occurs than to its objects or grounds.

224. Responsibility for Classification. The process of classification has to be carried out most carefully and rigidly. The primary responsibility for the classification of bills, vouchers etc. rests with the administrative authorities. Thus, every bill or voucher received from the treasuries should have entered on it the following particulars, namely, the major, the minor and the detailed heads to which the charges it records belong, and also whether the charges pertain to the Union or to the State and “voted” or “charged”; and similarly every item of receipt in the schedules and the monthly cash accounts received from the treasuries should have recorded on them the major, and in most cases also the minor and the detailed heads of classification. One of the most important duties of Account and Audit offices is to check before compilation, the classifi- cation thus entered, and where it is wanting, to classify the items properly on the bills or vouchers or in the monthly accounts. Where classified accounts are submitted to the Account and Audit offices, as for example, in the case of the Public Works and Forest Divisions, it is the duty of those offices to check before final compilation the correctness of the classification of every item booked in such accounts. (For detailed instructions, see Account Code, Volume 1).