Choose the correct option

1. Public finance and Private finance.


                   Public finance

                  Private finance


Public finance is concerned with the revenue/incomes and expenditure, borrowings, etc. of the economy or government.

Private finance is the study of income and expenditure, borrowings, etc. of individuals, households and business firms.


Government adjusts the income, according to the size of expenditure on different segments.

Individuals adjust their spending as per their income.


To promote social welfare.

To maximize profit.

Nature of Budget

The government prefers a deficit budget.

An individual attempts to maintain a surplus budget.

Financial Transaction

Transactions are open and known to all.

Transactions are kept secret.

2. Internal debt and External debt.

                                     Internal debt

                                         External debt

i) When a government borrows from its citizens, banks, central banks, financial institutions, business houses, etc. within the country, it is known as internal debt.

i) When a government borrows from foreign governments, foreign banks or institutions, international organizations like International Monetary Fund, World Bank, etc., it is known as external debt. 

ii) Internal debt is raised for internal requirements like financing the developmental plans.

ii) External debt is raised mainly for overcoming the balance of payment deficits and also for developmental plans.

iii) External debt has a greater burden on the economy than internal debt.

iii) In the case of external debt, when interest payments on the debt are due, money flows from the domestic economy to foreign countries

3. Developmental expenditure and Non-developmental expenditure.

                                Developmental Expenditure

                                   Non-Developmental Expenditure

1. Developmental expenditure refers to the expenditure of the government which helps in economic development by increasing production and real income of the country.

1. It refers to those expenditures of the government which does not directly help in the economic development of the country.

2. Developmental expenditure on revenue is divided into developmental expenditure on revenue account and developmental expenditure on capital account.

2. Cost of tax collection, cost of the audit, the printing of notes, internal law and order, expenditure on defense, etc. are treated as a non-developmental expenditure. Pension to retired govt. employees, non-developmental assistance to states are also included in this category.

4. Special assessment and Special levy.

Special Assessment:

a. The payment made by the citizens of a particular locality in exchange for certain special facilities given to them by the authorities is known as ‘special assessment.’
b. For example, local bodies can levy a special tax on the residents of a particular area where extra/special facilities of roads, energy, water supply, etc. are provided.

Special levy:
a. This is levied on those commodities, the consumption of which is harmful to the health and well-being of the citizens. Like fines and penalties, the objective is not to earn income, but to discourage the consumption of harmful commodities by the citizens.
b. For example, duties levied on wine, opium, and other intoxicants.

5. Direct tax and Indirect tax.

                                                    Direct tax

                                       Indirect tax

It is levied on income and activities conducted.

It is levied on products or services.

The burden of tax cannot be shifted in case of direct tax.

The burden of tax shifted for indirect taxes.

It is paid directly by the person concerned.

It is paid by one person but he recovers the same from another person i.e. person who actually bears the tax ultimate consumer.

It is paid after the income reaches the hands of the taxpayer.

It is paid before goods/service reaches the taxpayer.

Tax collection is difficult.

Tax collection is relatively easier.

Example Income tax, wealth tax, etc.

Example GST, excise duty custom duty sale tax service tax