Rule 98 of The General Financial Rules 2017 Capital Expenditure
Original Rule Text
Visual Summary
Acquiring permanent tangible assets or enhancing existing ones.
Maintenance, repair, upkeep, and day-to-day running costs.
Met from capital receipts or ordinary revenues; requires explicit authorization.
Executive Summary
Rule 98 of The General Financial Rules, 2017, defines Capital Expenditure as significant spending aimed at acquiring or enhancing permanent tangible assets for organizational use, not for sale. In contrast, Revenue Expenditure covers ongoing costs like maintenance, repairs, and daily operational expenses. The rule mandates that both types of expenditure must be accounted for separately. It also specifies that spending on temporary assets or grants-in-aid is generally not considered capital expenditure unless explicitly authorized by the President on the advice of the Comptroller and Auditor General of India. Capital expenditure is typically funded by capital receipts, though it can be met from ordinary revenues if sufficient. Crucially, any expenditure of a capital nature requires express authorization from the Government to be classified as such in the accounts and budget estimates.
In-Depth Analysis of the Rule
Introduction: Rule 98 provides a foundational distinction between Capital and Revenue Expenditure, which is critical for accurate government accounting and financial management. This classification impacts how funds are allocated, reported, and ultimately, how the financial health of government projects and departments is assessed.
Breakdown of the Rule:
- Definition of Capital Expenditure: This refers to substantial spending aimed at acquiring new, permanent tangible assets or significantly improving the utility of existing ones. The key is the long-term benefit and asset creation, not for routine business sale.
- Definition of Revenue Expenditure: This encompasses all subsequent costs associated with maintaining assets in working order, including repairs, upkeep, and all day-to-day operational, establishment, and administrative expenses. These are recurring costs necessary for the ongoing functioning of an organization.
- Separate Accounting: A strict requirement is that Capital and Revenue expenditures must be shown distinctly in Government Accounts and Budget Estimates, ensuring clarity in financial reporting.
- Exclusions: Expenditure on temporary assets or grants-in-aid is generally not classified as capital expenditure. Any deviation from this requires specific authorization from the President, advised by the Comptroller and Auditor General of India.
- Funding Sources: Capital expenditure is typically financed by capital receipts. However, it can be met from ordinary revenues if the government possesses sufficient revenue resources to cover such liabilities.
- Authorization for Classification: Even if an expenditure is capital in nature, it cannot be classified as Capital expenditure in Government Accounts unless explicitly authorized by general or special government orders.
Practical Example: Consider a government department constructing a new office building. The initial costs for land acquisition, construction, and fitting out the building with permanent fixtures would be classified as Capital Expenditure under Rule 98. Once the building is operational, the recurring costs for electricity, water, cleaning services, minor repairs, and staff salaries would fall under Revenue Expenditure. If the department later decides to add a new, permanent wing to the building, that would again be Capital Expenditure. However, if they merely repaint the existing building, that would be Revenue Expenditure.
Related Provisions
Understanding Rule 98 is enhanced by examining these related provisions:
- Rule 84 of The General Financial Rules 2017 Capital or Revenue Expenditure: Provides a similar definition and distinction between capital and revenue expenditure.
- Rule 99 of The General Financial Rules 2017 Principles for Allocation of Expenditure Between Capital and Revenue: Details the principles for allocating expenditure between capital and revenue accounts.
- Rule 50 of The General Financial Rules 2017 Expenditure Estimates: Outlines how expenditure estimates distinguish provisions for revenue and capital accounts.
Learning Aids
Mnemonics
- CAPITAL: Acquire Permanent Investments, Tangible Assets, Long-term.
Process Flowchart
Multiple Choice Questions (MCQs)
1. According to Rule 98 of The General Financial Rules, 2017, what is the primary characteristic of Capital Expenditure?
- A) Expenditure for day-to-day running of an organization.
- B) Significant expenditure for acquiring permanent tangible assets.
- C) Charges for maintenance and repair of existing assets.
- D) Grants-in-aid to various institutions.
Show Answer
Correct Answer: B) Significant expenditure for acquiring permanent tangible assets.
2. Which of the following is NOT ordinarily considered Capital Expenditure under Rule 98 of The General Financial Rules, 2017?
- A) Expenditure on enhancing the utility of existing assets.
- B) Expenditure on a temporary asset.
- C) Expenditure for new constructions.
- D) Expenditure for acquiring machinery for organizational use.
Show Answer
Correct Answer: B) Expenditure on a temporary asset.
3. How should Capital and Revenue expenditure be presented in the Government Accounts and Budget Estimates, according to Rule 98 of The General Financial Rules, 2017?
- A) They can be combined if the total amount is small.
- B) They must be shown separately.
- C) Only Capital expenditure needs to be shown.
- D) Only Revenue expenditure needs to be shown.
Show Answer
Correct Answer: B) They must be shown separately.
4. Under Rule 98 of The General Financial Rules, 2017, who must specifically authorize debiting expenditure on a temporary asset or grants-in-aid to a Capital Head?
- A) The Head of the Department.
- B) The Finance Ministry.
- C) The President on the advice of the Comptroller and Auditor General of India.
- D) The Accounts Officer.
Show Answer
Correct Answer: C) The President on the advice of the Comptroller and Auditor General of India.
5. How is Capital expenditure generally met, according to Rule 98 of The General Financial Rules, 2017?
- A) Exclusively from ordinary revenues.
- B) Primarily from capital receipts.
- C) Through short-term loans only.
- D) By re-appropriation of funds from other primary units.
Show Answer
Correct Answer: B) Primarily from capital receipts.
Frequently Asked Questions
What is the fundamental distinction between Capital and Revenue Expenditure under Rule 98?
The fundamental distinction is that Capital Expenditure involves significant spending to acquire or enhance permanent tangible assets, providing long-term benefits. Revenue Expenditure, on the other hand, covers recurring costs for maintaining assets and day-to-day operations.
Can expenditure on temporary assets be classified as Capital Expenditure?
Ordinarily, no. Rule 98 states that expenditure on a temporary asset or grants-in-aid cannot typically be considered Capital Expenditure, unless specifically authorized by the President on the advice of the Comptroller and Auditor General of India.
Why is explicit government authorization required for classifying expenditure as Capital?
Explicit authorization is crucial because classifying expenditure as ‘Capital’ has significant implications for government accounts, budget estimates, and financial reporting, ensuring proper oversight and adherence to financial propriety.
Key Takeaways
- Capital Expenditure focuses on acquiring or enhancing permanent tangible assets.
- Revenue Expenditure covers ongoing maintenance and operational costs.
- Both types of expenditure must be clearly separated in government accounts and budget estimates.
- Expenditure on temporary assets or grants-in-aid is generally excluded from Capital Expenditure.
- Explicit government authorization is mandatory for classifying any expenditure as capital in nature.
Conclusion
Rule 98 of The General Financial Rules, 2017, establishes a clear and essential framework for distinguishing between Capital and Revenue Expenditure. This distinction is not merely an accounting formality but a fundamental principle that underpins transparent financial management, responsible resource allocation, and accurate reporting of government assets and liabilities. Adherence to these guidelines ensures that public funds are utilized and accounted for with the highest standards of financial propriety.