# Concept of Capital and Revenue Receipts
The character of a receipt decides its taxability. Five contrasts capture the framework.
## 1. Regular vs Casual receipt
- Regular receipt: income expected from a defined source (salary, rent).
- Casual receipt: irregular / one-time earnings (lottery, crossword winnings). Still taxable as income.
## 2. Revenue vs Capital receipt
- Revenue receipt: earnings from regular business activity — normally income (taxable).
- Capital receipt: e.g. money from selling an asset — generally not income, but the Act specifically taxes certain capital gains (profit on sale of capital assets like land or jewellery).
## 3. Net vs Gross receipt
- Net receipt: total earnings minus allowable expenses — income is generally taxed on a net basis.
- Gross receipt: total before expenses. The Act specifies which expenses are deductible; some businesses are taxed on a percentage of gross receipts (presumptive taxation).
## 4. Due basis vs Receipt basis
- Due basis: income taxed when earned, whether or not received in cash.
- Receipt basis: income taxed only when actually received (e.g. interest on compensation).
- The taxpayer's method of accounting (cash vs mercantile) drives this recognition.
## 5. Application vs Diversion of Income — high-yield distinction
| Application of Income | Diversion of Income | |
|---|---|---|
| Timing | Income is used after it reaches the taxpayer | Income is diverted before it reaches the taxpayer |
| Cause | A voluntary / self-imposed obligation | An overriding obligation (e.g. court decree, statute) |
| Taxability | Taxable in the taxpayer's hands | Not taxable in the taxpayer's hands |
> Rule of thumb: ask "Did the money reach the assessee first?" If yes, it's application (taxed). If it was siphoned off before reaching him by an overriding title, it's diversion (not taxed).
> Reference: tests for capital vs revenue — ICAI Study Material pages 1.33–1.35 (Edition 2025, applicable for May 26 / Sept 26 / Jan 27).