Revenue Expenditure- Revenue expenditure refers to the expenditure which neither creates any asset nor causes reduction in any liability of the government.
1. It is recurring in nature.
2. It is incurred on normal functioning of the government and the provisions for various services.
3. Examples: Payment of salaries, pensions, interests, defence services, health services, grants to state, etc.

Capital Expenditure- Capital expenditure refers to the expenditure which either creates an asset or causes a reduction in the liabilities of the government.

1. It is non-recurring in nature.
2. It adds to capital stock of the economy and increases its productivity through expenditure on long period development programmers, like Metro or Flyover.
3. Examples: Loan to states and Union Territories, expenditure on building roads, flyovers. Factories, purchase of machinery etc., repayment of borrowings, etc.