Rule 99 of The General Financial Rules 2017 Principles for Allocation of Expenditure between Capital and Revenue

Original Rule Text

Rule99 Principles for allocation of expenditure between Capital and Revenue. The following are the main principles governing the allocation of expenditure between Revenue and Capital:(a) Capital shall bear all charges for the first construction and equipment of a project as well as charges for intermediate maintenance of the work while not yet opened for service. It shall also bear charges for such further additions and improvements, which enhance the useful life of the asset, as may be sanctioned under rules made by competent authority.(b) Subject to Clause (c) below, revenue shall bear subsequent charges for maintenance and all working expenses. These embrace all expenditure on the working and upkeep of the project and also on renewals and replacements and additions, improvements or extensions that are revenue in nature as per rules made by Government.(c) In the case of works of renewal and replacement, which partake expenditure both of a capital and revenue nature, the allocation of expenditure shall be regulated by the broad principle that Revenue should pay or provide a fund for the adequate re- placement of all wastage or depreciation of property originally provided out of capital grants. Only the cost of genuine improvements, which enhance the useful life of the asset whether determined by prescribed rules or formulae, or under special orders of Government, may be debited to Capital. Where under special orders of Government, a Depreciation or Renewals Reserve Fund is established for renewing assets of any commercial department or undertaking, the distribution of expenditure on renewals and replacements between Capital and the Fund shall be so regulated as to guard against over-capitalisation on the one hand and excessive withdrawals from the Fund on the other.(d) Expenditure on account of reparation of damage caused by extraordinary calamities such as flood, fire, earthquake, enemy action, etc., shall be charged to Capital, or to Revenue, or divided between them, depending upon whether such expenditure results in creation/acquisition of new assets or whether it is only for restoring the condition of the existing assets, as may be determined by Government according to the circumstance of each case.(e) Expenditure on a temporary asset cannot ordinarily be considered as a capital expenditure and shall not, except in cases specifically authorised by the President on the advice of the Comptroller and Auditor General of India, be debited to a Capital Head.

Visual Summary

Capital vs Revenue

Differentiates government expenditure types.

Capital Expenditure

New construction, major additions, life enhancements.

Revenue Expenditure

Routine maintenance, working expenses, minor repairs.

Executive Summary

Rule 99 of the General Financial Rules, 2017, lays down the fundamental principles for classifying government expenditure as either Capital or Revenue. It distinguishes between spending that creates new permanent assets or significantly enhances their useful life (Capital) and expenditure related to routine maintenance, day-to-day operations, and replacements that offset depreciation (Revenue). The rule also provides specific guidance for allocating costs arising from renewals, extraordinary calamities, and temporary assets, ensuring financial propriety and accurate accounting of public funds.

In-Depth Analysis of the Rule

Rule 99 is crucial for maintaining transparent and accurate government accounts by providing clear guidelines for expenditure classification. Proper allocation ensures that the true financial picture of asset creation versus operational costs is reflected.

Breakdown of the Rule

Capital Expenditure (Clause a): This category includes all initial costs for constructing and equipping a project, as well as intermediate maintenance before the project becomes operational. Crucially, it covers additions and improvements that genuinely enhance an asset’s useful life, provided they are sanctioned by a competent authority.
Revenue Expenditure (Clause b): This covers ongoing costs such as subsequent maintenance, all working expenses, and routine renewals or replacements. These are expenditures aimed at keeping the project running and maintaining its existing condition.
Renewals and Replacements (Clause c): For works involving both capital and revenue elements, the principle is that Revenue should cover the cost of wastage or depreciation. Only the cost of ‘genuine improvements’ that extend the asset’s useful life can be debited to Capital. Special rules apply if a Depreciation or Renewals Reserve Fund exists for commercial departments.
Extraordinary Calamities (Clause d): Expenditure for repairing damage from events like floods or fires is allocated based on its outcome. If it results in new asset creation or acquisition, it’s Capital; if it merely restores the existing asset’s condition, it’s Revenue.
Temporary Assets (Clause e): Generally, expenditure on temporary assets is considered Revenue. It can only be debited to a Capital Head if specifically authorized by the President on the advice of the Comptroller and Auditor General of India.

Practical Example

Consider a government project to build a new bridge. The initial construction costs, including materials, labor, and equipment, would be classified as Capital Expenditure under Rule 99(a). If, during construction, a temporary access road is built for workers, its cost would ordinarily be Revenue Expenditure as per Rule 99(e), unless a special authorization is obtained. Once the bridge is operational, routine painting, minor repairs, and day-to-day operational costs would fall under Revenue Expenditure as per Rule 99(b). If a major structural upgrade is later undertaken that significantly extends the bridge’s lifespan, that specific improvement would be Capital Expenditure under Rule 99(a) and (c).

Related Provisions

Understanding Rule 99 is enhanced by reviewing these related provisions:

Rule 98 of The General Financial Rules 2017 Capital Expenditure: This rule provides a direct definition of Capital Expenditure, which is fundamental to the allocation principles in Rule 99.
Rule 100 of The General Financial Rules 2017 Allocation between Capital and Revenue Expenditure: This subsequent rule details how the allocation between capital and revenue expenditure on a Capital Scheme is determined, often in consultation with the Comptroller and Auditor General of India.

Learning Aids

Mnemonics

C.A.R.E. for Capital, M.O.R.E. for Revenue:
Capital: Assets (New), Renewals (Genuine Improvements), Enhancements (Life-extending).
Revenue: Maintenance, Operations, Repairs (Routine), Expenses (Working).

Process Flowchart

Multiple Choice Questions

1. What is the primary purpose of Rule 99 of the General Financial Rules, 2017?

A) To define the powers of sanctioning authorities.
B) To regulate the allocation of expenditure between Capital and Revenue.
C) To establish procedures for procurement of goods.
D) To outline rules for inter-departmental adjustments.

Show Answer

Correct Answer: B) To regulate the allocation of expenditure between Capital and Revenue.

2. Under Rule 99 of the General Financial Rules, 2017, which of the following would typically be charged to Capital?

A) Subsequent charges for routine maintenance of a project.
B) Working expenses for the upkeep of a project.
C) Charges for the first construction and equipment of a new project.
D) Replacements that only cover depreciation of property.

Show Answer

Correct Answer: C) Charges for the first construction and equipment of a new project.

3. According to Rule 99 of the General Financial Rules, 2017, expenditure on subsequent charges for maintenance and working expenses is generally classified as what?

A) Capital expenditure.
B) Revenue expenditure.
C) Contingency expenditure.
D) Deferred expenditure.

Show Answer

Correct Answer: B) Revenue expenditure.

4. When does expenditure on renewals and replacements qualify for debit to Capital under Rule 99 of the General Financial Rules, 2017?

A) Always, as all renewals are capital in nature.
B) Only if they are revenue in nature as per government rules.
C) Only the cost of genuine improvements that enhance the useful life of the asset.
D) When a Depreciation or Renewals Reserve Fund is established.

Show Answer

Correct Answer: C) Only the cost of genuine improvements that enhance the useful life of the asset.

5. As per Rule 99 of the General Financial Rules, 2017, how is expenditure on repairing damage from extraordinary calamities classified if it only restores existing assets?

A) Always charged to Capital.
B) Always charged to Revenue.
C) Divided between Capital and Revenue based on government determination.
D) Primarily charged to a Contingency Fund.

Show Answer

Correct Answer: C) Divided between Capital and Revenue based on government determination.

Frequently Asked Questions

What is the key distinction between Capital and Revenue expenditure under Rule 99 of the General Financial Rules, 2017?

The key distinction is that Capital expenditure relates to the creation of new permanent assets or significant enhancements to existing ones, while Revenue expenditure covers routine maintenance, working expenses, and replacements that offset depreciation.

Can intermediate maintenance charges be debited to Capital as per Rule 99 of the General Financial Rules, 2017?

Yes, Rule 99(a) states that Capital shall bear charges for intermediate maintenance of a work while it is not yet opened for service.

How does Rule 99 of the General Financial Rules, 2017 treat expenditure on temporary assets?

Ordinarily, expenditure on a temporary asset is not considered Capital expenditure and is charged to Revenue, unless specifically authorized by the President on the advice of the Comptroller and Auditor General of India.

Key Takeaways

Rule 99 provides the core principles for classifying government expenditure as Capital or Revenue.
Capital expenditure is for creating new permanent assets or making genuine, life-enhancing improvements.
Revenue expenditure covers routine maintenance, working expenses, and replacements that offset depreciation.
Specific guidelines exist for allocating costs from renewals, extraordinary calamities, and temporary assets.

Conclusion

Rule 99 is a cornerstone of sound financial management within the government, ensuring that public funds are accurately categorized and accounted for. By clearly delineating between Capital and Revenue expenditure, it facilitates informed decision-making, promotes fiscal transparency, and helps in assessing the long-term impact of government spending on asset creation versus operational costs. Adherence to these principles is vital for maintaining financial propriety and effective resource allocation.

Continue to Rule 100 →