Classification / Allocation of Revenue Expenditure - Explained

 

Classification and Allocation of Expenditure in Indian Railways

(With Simplified Domestic Analogy for Better Understanding)

1.     Introduction

Classification and allocation of expenditure form the foundation of railway financial accounting. The system ensures that every rupee spent is properly identified under its appropriate accounting head — right from Major Head to Object Head (Primary Unit) — as prescribed in Indian Railways Financial Code, Volume II.   Click for F2 - Financial Code Volume Two

For easy comprehension, this complex structure can be compared with how a family categorizes its household expenses — groceries, rent, school fees, travel, etc. Similarly, Indian Railways classifies its expenditure systematically for transparent financial control and reporting.

2. Structure of Classification

The standard Railway accounting classification follows this order:
Major Head → Sub-Major Head → Minor Head → Sub Head → Detailed Head → Object Head (Primary Unit).
Each head serves a unique purpose in identifying the nature, function, and object of expenditure.

2.     Comparative Table: Railway vs Household Classification

Level of Classification	In Indian Railways (Financial Code Volume II)	Household Analogy
Major Head (MH)	Broad category like 3002 – Working Expenses, 5002 – Capital Outlay	Total household expenditure – daily vs capital items like groceries vs furniture
Classification starts from here
First part – erstwhile Demand 03 of 03 – 113 - 18
Sub-Major Head (SMH) / Erstwhile Demand	Divisions within Major Head – e.g., erstwhile Demands 03 to 14 (Sub Major Heads 01 to 12)	Broad household categories like rent, groceries, education, travel
Second part – MH/SH/DH 113 of 03 – 113 - 18
Minor Head (MH)	Functional divisions – Admin, Finance, Personnel, Engineering	Subcategories of groceries – cereals, pulses, vegetables, dairy, etc.
Sub Head (SH)	Specific offices or units – GM Office, DRM Office, Vigilance, Legal cell, Work study etc	Further division of cereals – rice, wheat, millets, etc.
Detailed Head (DH)	Specific item/service – Gaz. Officers, Non-Gaz. Staff, Contingencies etc	Types of rice – basmati, raw, boiled, unpolished, etc.
Third & Final part – PU 18 of 03 – 113 - 18
Object Head (Primary Unit)	Purpose of spending – Pay, Allowances, Office Expenses, Travel	Mode of purchase – home-grown, purchased, from stock, exchanged

3.     Illustrative Example of a Railway Allocation

 

Head of Account	Code	Explanation
Major Head	3002	IR Working Expenses – Commercial Lines
Erstwhile Demand	03	General Superintendence & Services (SMH 01)
Minor Head	100	General Administration
Sub Head	110	GM Office
Detailed Head	113	Office Contingencies
Object Head	18	Office Expenses

 

Full Classification Example: 03-100-110-113-18 → 03 – 113 - 18 Office Expenses for GM Office under General Administration.

  

 4.     Key Points for Academic Understanding

 

Concept	Explanation
Purpose	Ensures financial discipline, transparency, and accountability.
Utility	Facilitates budget control, monitoring, and comparison across Railways.
Uniformity	Aligns with Government of India’s standard heads of account.
Example	Classification like 03-100-110-113-18 / 03-113-18 clearly shows the flow from function to expenditure item.
Audit Relevance	Helps internal and external audit track expenditure purpose accurately.

5.     Conclusion

Understanding the classification of expenditure is simplified when related to practical analogies. Just as families categorize expenses to maintain order, Indian Railways uses a hierarchical classification system to ensure efficient budgeting, control, and audit compliance.

This structure, prescribed in Indian Railways Financial Code Volume II, forms the backbone of Railway accounting and financial management.

 

YouTube Video - Demands for Grants

Allocations - New Primary Units

Railway Board introduced New Primary Units, modified existing Primary Units and deleted the existing Primary Units which are not required in Finance Code Volume II ( Revenue classification).  

                Please click the Board's letter here


                             New Primary Units

Primary Units ( Revenue) - Classification of Revenue Expenditure, Finance Code Volume Two

 

Miscellaneous Receipts on Capital side

 Miscellaneous Receipts on Capital side 

(as per Finance Code Volume II)

Detailed Head Allocations:

• 1198 under Plan Head 1100 - New Lines

• 1798 Under Plan Head 1700 - Computerization

• 3368 under Plan Head 3300 - S&T Works

• 6568 under Plan Head 6500 - Training/HRD

Consists of: 

1. Earnings from an unopened line or a line partially opened for traffic and not made over to the open line administration.

2. Sale proceeds of Tenders on the construction organisations, whether attached to Open Lines or not.

3. Forfeited EMD

4. Forfeited SD

5. Penalties recovered from Contractors.

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Finance Accounts and Capital & Revenue Accounts

 

Finance Accounts and Capital & Revenue Accounts

·         Indian Railways is a Departmental Commercial Organization.  So not only secure essential requirements of Commercial Accounts, but also conforms to the Government Accounts. So it prepares Capital & Revenue Accounts and Finance Accounts to comply the Commercial Accounts and Government Accounts respectively

Commercial Accounts:

·         Also called as Capital and Revenue Accounts.

 

·         Recorded in such a way;

1.       How its Capital has been utilised (Balance Sheet)

2.       How it (IR) stands in relation to its Debtors and Creditors (Balance Sheet)

3.       Whether it (IR) is gaining or losing (Profit & Loss A/c)

4.       Whether the sources of its gains or losses

5.       Whether it is solvent or insolvent+

 

·         So, the Accounts of Railway presented in such a form as to facilitate a review of Railways as a Commercial undertaking.

 

·         To be included in Annual Report of IR

 

·         Sources :

1.       Revenue  - Revenue Allocation Register (RAR)

2.       Register of Earnings/Revenue 

3.       Registers of Capital, DRF, DF etc  - Works

 

·         Due date : 15th September or any other date prescribed by the Railway Board from year to year

·         Financial Results cannot be gauged correctly unless transactions recorded separately for Revenue and Capital

 

·         Loan A/c  - Assets created out of Capital only

 

·         Block A/c - Assets created out of all sources of finance (Capital + DRF + DF + RRSK + RSF)

 

·         Consists of : Statements of

1.       Authorised Capital

2.       Stock

3.       Loans, Debentures

4.       Receipts & Expenditure of Capital A/c

5.       Capital expenditure details for the year

6.       Capital A/c

7.       Revenue A/c

8.       Distribution of Earnings/Revenue and working expenses of worked lines

9.       GWE - Gross Working Expenses - Summary

10.   GWE - Gross Working Expenses - Details

11.   Earnings/Revenue

12.   Outstanding Earnings/Revenue (Traffic Suspense & DR)

13.   Net Revenue A/c

14.   DRF A/c

15.   Erstwhile Demands 1 & 2 / Major Head 3001

16.   Development Fund A/c (DF)

Government Accounts:

Government Accounts are kept in 3 Parts - Flow Chart

Government Accounts

 

 

  ·         Also known as Finance A/cs

·         Duly classified as per prescribed rules of Government

·         Object: Systematic record of all Receipts & Expenditure classified under certain appropriated headings.

·         Railway Fund:

 

1.       Though the Railway transactions form the part of Consolidated Fund, Contingency Fund & Public Account, they are accounted in the pro forma "Railway Fund"

2.       In the books of CAS - Central Accounting Section, RBI/Nagpur

 

·         Extra Railway Transactions:  Railway Audit expenditure  - booked in Railway Accounts for convenience purpose, though they do not pertain to Railway Revenue & Expenditure.

 

Structure of Booking of expenditure / earnings in Indian Railways

Hierarchy		Example:  HRA of PFA		Description
Major Head		3002		Indian Railways Commercial Lines -  Working Expenses
SMH - Sub Major Head		01		General Superintendence & Services
MH -Minor Head		200		Financial Management
Sub Head ( Subordinate Head)		210		Accounts
Detailed Head		211		Officers
Object Head ( PU -Primary Unit)		04		HRA - House Rent  Allowance

 

·         Final Allocation / classification of HRA of PFA - 03-0211-04

 

·         Note:  Still, allocation structure aligns with erstwhile Demand No. 03 - for Sub Major Head 01 -" General Superintendence & Services"

 

·         Monthly Account Current /Annual Account Current - complies the Finance A/cs

 

·         Railway Accounts further classified into 1. Commercial Lines  2. Strategic Lines

 

·         Strategic lines exists in 4 Zonal Railways.   They are NR, NFR, NWR & WR

 

·         Recoveries (of overpayments in last year) - shown as Earnings/Revenue in Current year.

 

·         However, recoveries due to difference in attendance of previous year - should be shown as reduction in the expenditure only in current year.

 

·         Credits up to Rs. 10 thousands pertaining to closed works - to be post as Earnings/Revenue

 

·         Para 217A -  Allocation of Receipts & Expenditure 

 

A.      The primary responsibility for the allocation of all receipts and payments rests with the concerned departmental officers.

 

B.      Each bill or voucher received from them should show the correct allocation of the receipt/expenditure in the fullest detail.

 

C.      The Accounts Department is responsible for seeing, to the extent it is possible for them to do so, that the allocation shown on the initial document is not prima facie incorrect.

 

·          Correct classification should be followed in recording the expenditure in accounts irrespective of whether provision in the budget has been made under correct budget head.

 

·         In order, however, to avoid undue variation between the budget and accounts figures, changed in accounting classification will not ordinarily be introduced during the course of the year.

 

·         In the case of works, the allocation of which has to be changed during the course of a year from one head of expenditure to another, classification of expenditure in that year should follow the original allocation. The change should be given effect to from the beginning of the next financial year only after making necessary provision in the Budget at the Budget stage or at the Revised Estimate stage to cover not only the estimated expenditure for the budget year but also write back of the expenditure incurred from the commencement of the work to the end of the previous year.

 

Link Heads between Govt Accounts & Commercial Accounts

 

	Demands Payable	Labour	Traffic	Bills Recoverable
Revenue / Capital	Revenue	Capital	Revenue	Revenue
Always having	Credit balance	Credit balance	Debit balance	Debit balance
Operated on	Expenditure side	Expenditure side	Earnings side	Earnings side

 

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