In the Union Budget, 'Grants-in-Aid' provided by the Central Government to State Governments or Union Territories are classified as Capital Expenditure because they are used to fund large infrastructure projects.

Even if the receiving state uses the funds to build a highway, from the perspective of the Central Government's accounting, Grants-in-Aid are classified as 'Revenue Expenditure.' This is because these grants do not result in the creation of any physical or financial assets for the Centre, nor do they reduce any of the Centre's liabilities; they are simply unconditional or conditional transfers of current income.