Select the correct answer: The sources of revenues of urban local bodies in…

Receipts of a local body are classified as either revenue receipts or capital receipts. A revenue receipt is a recurring receipt that does not create any repayment obligation for the local body — taxes, non-tax charges (fees and fines), and grants-in-aid all fall in this category. A capital receipt, in contrast, is one that creates a liability or reduces an asset — a loan/borrowing is the classic example, since it must eventually be repaid with interest.

Applying this test to the four items listed: Taxes (i) are compulsory levies collected directly by the municipality — a revenue receipt. Fees and Fines (ii) are non-tax charges for services rendered and penalties imposed — also a revenue receipt. Grants (iii) are transfers received from the State or Central government (through Finance Commission devolution or centrally sponsored schemes) that carry no repayment obligation — a revenue receipt as well. Loans (iv), however, are borrowed funds that create a future repayment obligation with interest, so they are booked as a capital receipt, not revenue.

Why the other combinations fall short:

• “(i) and (ii)” only — omits a genuine revenue category that a municipality receives as a transfer, even though that transfer too carries no repayment obligation.

• “(i) and (iii)” only — omits a genuine revenue category that a municipality earns directly for services rendered and penalties imposed.

• “None of the above” — three of the four listed items are, in fact, standard revenue categories for a municipality.

Hence Taxes, Fees & Fines, and Grants together — i.e., (i), (ii) and (iii) — are the sources of revenue of urban local bodies in India; Loans are a source of finance for a municipality but not a source of revenue.