Para 3.16.31 — MSO (Audit)
Original Rule Text
3.16.31 It must be remembered that while it may seem to be sound and prudent practice to meet any expenditure, whether of a capital nature or otherwise, from revenue, it follows that the revenue derived from taxation and other revenue sources must be sufficient to cover the expenditure debitable to it. Otherwise, the debit to borrowed funds is merely disguised, since in normal circumstances revenue deficits must be financed from borrowings.
# F. Duties of Audit in relation to allocation of expenditure
What This Means
While charging expenditure to revenue may seem prudent, this only works if actual revenue from taxes and other sources is sufficient to cover it. If revenue is insufficient, a revenue deficit results, and in normal circumstances that deficit must be financed through borrowings anyway. So the supposed benefit of charging expenditure to revenue is merely a disguise if the revenue cannot actually support it.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Charging expenditure to revenue is sound only if revenue is sufficient to cover it
- 2Revenue deficits must normally be financed from borrowings
- 3If revenue is insufficient, debiting expenditure to revenue merely disguises borrowing
- 4The real test is whether tax and other revenue sources can bear the expenditure
Practical Example
A state government insists on charging Rs 500 crore of road construction to the Revenue Account to demonstrate fiscal prudence. However, the state already runs a revenue deficit of Rs 2,000 crore. The audit team points out that since the deficit is financed through market borrowings, charging the road cost to revenue does not actually avoid borrowing — it merely hides the capital nature of the expenditure.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
Is it always better to charge expenditure to revenue rather than capital?▼
What is the practical lesson for government financial planning?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.