UNIT 3: ACCOUNTING FOR RURAL LOCAL GOVERNMENTS

SALARY, TRAVELLING ALLOWANCES AND OTHER ALLOWANCES TO

ADYAKSHA, UPADYAKSHA AND MEMBERS OF ZILLA PANCHAYAT, TALUK
PANCHAYAT, GRAM PANCHAYAT

Few State Governments have implemented the 6th Pay Commission's recommendations. while,
some states have their own pay structures. For latter category of the States, it may be ficult to
follow the 6th Pay Commission's pay structures for PRIs. They would necessarily love to follow
the pay structure applicable to other State Government employees of the State. Salary and
allowances to the Adhyaksha and Upadhyaksha and other members:

a) The salary and allowances of Adhyaksha and Upadhyaksha shall be as prescribed.

b) Every member of the Zilla Panchayat other than the Adhyaksha and the Upadhyaksha shall be
entitled to receive such sitting fee and allowances, as may be prescribed.

Payment Honorarium of Adyaksha and Upadyaksha of Gram Panchayat

Payment of honoraria and other allowances of Pradhan, Upa-Pradhan, Sanchalaks, Members and
salary to the employees of the Gram Panchayat. A Gram Panchayat shall maintain an quance
register in Form 10 for disbursement of honorarium and allowances to the Pradhan, Ups-Pradhan,
Sanchalaks, or the members and in Form 11 for disbursement of salary to its mployees

GRANTS AND FUNDS

1. For every Panchayati Raj Institution, there shall be constituted a fund bearing the name of the
concerned Panchayati Raj Institution and there shall be placed to the credit thereof
a) Contributions and grants, if any, made by the Central or the State Government including such
part of the land revenue collected in the State as may be determined by the government.
b) Share of taxes or other revenues as approved by the State Finance Commmission;
c) Contribution and grants, if any, made by any local authority.
d) Loan, if any, granted by the Central or the State Government or raised by the Panchayati Raj
Institution concerned.
e) All receipts on account of tolls, taxes and fees levied by the concerned Panchayati Raj
Institution.
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f) All receipts in respect of any school, hospitals, dispensaries, building institution or work vested
in, constructed by or placed under the control and management of the concerted Panchayati Raj
Institution.
g) All sums received as gift or contribution and all income from any trust or endowment made in
favour of the concerned Panchayati Raj Institution.

h) All fines or penalties imposed and realised under the provisions of this Act or of the bye- laws,
made thereunder, and
i) All other sums received by or on behalf of the concerned Panchayati Raj Institution.

2. Every Panchayati Raj Institution shall set apart and apply annually such sums as may be required
to meet the cost of its own administration including the payment of salary, allowances, provident
fund and gratuity to the officers and employees. The total expenditure on establishment shall not
exceed thirty per cent of the total expenditure of the concerned Panchayati Raj Institution.

3. A Panchayati Raj Institution shall have power to spend such sums as it thinks fit for carrying out
the purposes of this Act and may determine the amount of imprest to be kept to defray current
expenses.

4. The Panchayati Raj Institution fund shall be vested in the concerned Panchayati Raj Institution
and the balance of the credit of the fund shall be kept in personal deposit account in the nearest
Treasury/Sub-Treasury, Post Office or branch of any Scheduled Bank.]

5. Subject to such general control as the Panchayat Samiti or Zila Parishad may exercise from time
to time, all orders and cheques for payments from the Panchayat Samiti Fund or Zila Parishad
Fund, shall be signed by the Vikas Adhikari or Chief Executive Officer respectively and in this
absence by an officer authorised by the Panchayat Samiti or Zila Parishad.

TAXES
Taxes which may be imposed by a Panchayat
Taxes which may be imposed by a Panchayat are as follows:

1. Subject to the rules and any orders made by State Government in this behalf, a Panchayat may
impose one or more of following taxes, namely

a) A tax on building owned by persons not exceeding such rate as may be prescribed.
 UNIT 3: ACCOUNTING FOR RURAL LOCAL GOVERNMENTS

b) An octroi on animals or goods brought within the Panchayat Circle for consumption or
use therein.
c) Vehicle tax except on those which are used for the purpose or cultivation.
d) Pilgrim tax;
e) A tax for arranging the supply of drinking water within the Panchayat Circle,
f) A tax on commercial crops;
g) any other tax which the State Legislature has under the Constitution, power to impose in
the State and which has been sanctioned by the Government

2. The taxes under Sub-sec shall be imposed, assessed and raised in such manner and paid or
realised at such times, as may be prescribed.

3. The State Government, by notification in the Official Gazette, require any Panchayat to
impose, subject to the provisions of Sub-sec, any of the taxes specified in Sub-sec from such
date and at such rates, as may be specified in the notification.

4. The Panchayat Shall proceed to impose the tax or taxes therein specified, as if a resolution of
the Panchayat had been passed for the imposition thereof and it shall not be lawful for it to
abandon, modify or abolish any tax so imposed:

a) Provided that the State Government may at any time cancel any such requisition or modify
it in any respect.

b) Provided further that when any tax has been imposed upon the requisition of the State
Government under Sub-sec. (3), any other tax of like nature previously imposed by the
Panchayat without such requisition shall cease to be levied and realised from the date from
which the tax imposed upon the said requisition is to be levied and realised.

c) Provided further that the tax under Clause (c) of Sub-sec. (1) shall not be levied on a motor
vehicles as defined in the Motor Vehicles Act, 1988 or any other mechanically propelled
vehicle.

POWER OF PANCHAYAT TO CHARGE FEES

A panchayat may charge fees for:
1. Any licence or permission granted or given by it for making any temporary erection or for
putting up any projection
2. For the temporary occupation of any public or other land vested in the Panchayat
3. For any service rendered by it or in respect of any duty performed by it or under the
provisions of the Panchayat Raj Act.
 UNIT 3: ACCOUNTING FOR RURAL LOCAL GOVERNMENTS

POWERS OF PANCHAYAT SAMITI TO IMPOSE TAXES

A Panchayat Samiti may impose and levy in the prescribed manner a tax on the rent payable for
the use or occupation of agriculture land, at the rate of fifty paise in a rupee of such rent, such tax
being payable by the person or persons severally or jointly in cultivator possession of such land or
in respect of any income therefrom. Subject to the provision of Art. 276 of the Constitution of India
and to any general or special orders of the State Government, a Panchayat Samiti may also impose
and levy in the prescribed manner all or any of the following taxes, namely:
1. A tax on such trades, calling professions and industries as may be prescribed.
2. A primary education cess; and
3. A tax in respect of Panchayat Samiti fairs held within the limits of its jurisdiction.

POWER OF A ZILA PARISHAD TO IMPOSE TAXES AND FEES

Subject to such maximum rates as the Government may prescribe, a Zila Parishad may levy:
1. A fee for licence for a fair or mela;
2. Water rate, where management for the supply of water for drinking, irrigation or any purpose is
made by the Zila Parishad within its jurisdiction.
3. Surcharge:
a) Upto five per cent on stamp duty on sale of property in rural areas; and
b) Upto a half per cent on the market fees referred to in Sec. 17 of the Rajasthan Agriculture
Product Market, 1961 (Rajasthan Act No.38 of 1961).

GRAM PANCHAYAT-BUDGET AND ACCOUNT RULES

The GPs were following a 'Single Entry- Cash basis' system of accounting. Under this a cash
book was maintained in which entries were made for all receipts and payments. A ripts and
payments account was prepared on monthly/yearly basis, to summarize the receipts and payments
during the period under various heads. In addition, a series of registers and cords (asset registers,
demand, collection and balance register, advances register etc.) were ed separately which gave
information on specific items. This system had several tions. Information was fragmented and
incomplete. Authenticity of information could not be red. The information provided by the receipts
and payments account was inadequate in an of information explosion and transparency. The new
 UNIT 3: ACCOUNTING FOR RURAL LOCAL GOVERNMENTS

KPR (GPBA) Rules addresses these tations and provides for financial statements which could be
easily understood by all stakeholders

As National Rural Employment Guarantee Scheme is implemented in all the GPS in the
country from 1st April, 2008, flow of grants to GPs from Government will henceforth increase
manifold. The new KPR (GPBA) Rules will go a long way in ensuring proper accounting of grants
received by the GPs and furnishing required financial reports to Government.

SALIENT FEATURES OF THE NEW GP ACCOUNTING AND BUDGETING SYSTEM

The following are the salient features of the new accounting and budgeting system:
a. It is a double-entry accounting system.

b. Accrual of income and expenditure is done on a selective basis.

c. Accounting is done using a standard chart of accounts, which is uniform for all GPs.

d. Budgeting is done on cash basis, using prescribed budget codes.

e. The accounting and budgeting system consists of a series of accounting, and non-
accounting forms and registers.

f. At the end of the year, the accounts are summarized into a set of financial statements
which reflect the performance of the GP during the year, and its financial position as at the
end of the year.

GRAM PANCHAYAT FUNDS

A major portion of Part IX of the Constitution deals with the structural empowerment of
the

PRIs but the real strength in terms of both autonomy and efficiency of these institutions is
dependent on their financial position (including their capacity to generate own resources).
In general, Panchayats in our country receive funds in the following ways:

1. Grants from the Union Government based on the recommendations of the Central
Finance Commission.

2. Devolution from the State Government based on the recommendations of the State
Finance Commission.
UNIT 3: ACCOUNTING FOR RURAL LOCAL GOVERNMENTS

3. Loans/grants from the State Government

4. Programme-specific allocation under Centrally Sponsored Schemes and Additional

Central Assistance

ACCOUNTING POLICIES FOR GRAMA PANCHAYATS

1. Accounting year

The accounting year shall be the same as the financial year.

2. Accounting of Income Accruable in Nature

Income of a recurring nature, the right to receive which devolves on the GP in regular
shall be considered as an "accruable income". Such income shall be recognized on amal
basis, and treated as "receivable".

Income which falls due for collection on a specific date or period during the financial
year, and for which a "Demand, Collection and Balance register" (DCB Register) has to be
maintained, be defined as "accruable income". Accrual entries for all types of "accruable
income" from ting assessments shall be passed in the beginning of the year irrespective of
their due dates, ir the sake of ease in accounting. Income shall be recognized on the basis
of assessment list, mutation registers and the DCB registers.

Examples of "accruable income" are tax on land and buildings, rent from shops,
entertainment tax, vehicle tax, advertisement tax on hoardings etc.

Interest on short term fixed deposits shall be accounted on accrual basis on the
respective due dates. Interest on deposits out of general funds shall be credited to income
of the period. Interest on deposits of scheme funds or sinking funds shall be credited to the
respective scheme accounts or sinking fund accounts.

3. New Demands, Change in Demand during the Course of the Year

There may be increase or decrease in demand during the year on account of taxes or rent
on new buildings, a rented building falling vacant, new water connections etc. Adjustment
entries shall be passed at the end of the year for the increase/decrease or change in demand
during the year, so that the amounts accrued in respect of different types of income tally
with the total demand as per the relevant DCB Register.
UNIT 3: ACCOUNTING FOR RURAL LOCAL GOVERNMENTS

4. Accruable Income Received In Advance

In case an accruable income which is actually due in a subsequent year, but received during
the year (for example, tax on building for the year 2009-10, but received during 2008-09),
it shall be accounted as a liability in the year in which it is received, and shall be recognized
as income in the year in which it is due.

5. Accounting for Cess

i. Cess payable to the Government: Cess, if any, to be collected along with tax on land
buildings or any other tax or fees, and payable to the Government shall be
recognized a lability on collection of tax or fees Cess remitted to the Government
shall be adjusted spang the liability.
ii. Cess collection charges: Collection charges, if any, to be retained by the GP's out
of cou collected shall be recognized as income on collection of cess.

6. Write Off Of Unrealisable Receivables

White-off of amount due in respect of any tax, fees, or rate or other accruable income
accordance with relevant law shall be treated as an expense, and "receivables" shall be
reduced to the extent of the write off. Any subsequent collection or recovery of such writen
et receivables shall be recognized as 'Income.

7. Accounting For Non Accruable Income

Income of a non-recurring nature, the receipt of which cannot be anticipated in

advance nor can be quantified shall be considered as "non-accruable income", and
recognized on cu basis. These are income types that do not require maintenance of a
DCB Register. However, is the case of income of non- recurring nature, if the right to
receive any such income is established before the end of the year (for example, if the
contract is entered into, or order for grant is received etc), such income shall be accrued
at the end of the year, to the extent pertaining to the accounting year.

Examples for non accruable incomes are, building license fees, income from cattle
pounds, jatra fees, grazing charges, fines and penalties, income from sale of fruits, grass
etc.

A non-refundable deposit, if any received in connection with new water supply

connection, lease rights etc shall be accounted as "income" on receipt. If the deposit is
refundable, it shall be accounted as a liability.
UNIT 3: ACCOUNTING FOR RURAL LOCAL GOVERNMENTS

8. Accounting For Expenditure

All expenditure including establishment bills, bills of suppliers of material, and work bills
of contractors and administrative and general expenses shall be accrued as and when they
are submitted for payment, by treating them as liabilities. Payment of such bills shall be
adjusted against the liabilities.

9. Works Related Transactions

a) Earnest money deposit (EMD) and security deposit received or recovered from
contractors bills shall be recognized as liabilities. If deposits are forfeited or lapsed,
they shall be recognized as income in the year when they are so forfeited or lapsed

b) Expenditure on capital work shall be recognised as "Capital Work-in-Progress" until

completion of work, and shall be "capitalized" on completion of construction

c) Expenditure on repair/maintenance work shall be recognized as an expense as and

when bills are admitted for payment

d) Deposit given to PWD or any other external agency for "Deposit works" shall be treated
as an advance (asset) initially. The advance shall be adjusted against the amount
payable for the works on receipt of statement of outlay from the agency, and shall be
capitalized on receipt of completion report.

10. Fixed Assets

a) Fixed assets shall be reported at written down value (i.e., historical cost of the asset
less up-to-date depreciation) in financial statements.

b) The cost of fixed assets shall include cost incurred/money spent in acquiring or
installing or constructing fixed assets.

c) Any addition or improvement to the fixed asset that results in increasing the
capacity or useful life of the asset shall be capitalized and included in the cost of
asset. Expenditure incurred to maintain the asset and sustain its functioning shall
be charged off as revenue expenditure.

d) In the case of a fixed asset received free of cost, or gifted to the GP, the fixed asset
shall be recognized at a nominal value of Rs 1.
UNIT 3: ACCOUNTING FOR RURAL LOCAL GOVERNMENTS

e) In the case of an asset received at a concessional or nominal rate, it shall be

accounted at the cost to the GP, treating an equivalent amount as capital fund.

f) In the case of an asset transferred to the GP by the Government or by any person,

it shall be accounted at the value at which it is transferred to the GP, as certified by
the competent authority.

11. Loans Received

a) A loan received by a GP shall be recognized as a liability and shall be reduced by

amounts paid towards repayment of the loan, as and when such payments are made

b) Interest on loan received shall be recognized as an expense as and when paid. However,
at the end of the year period, interest outstanding shall be calculated and accounted as
"interest payable" (liability).

c) Interest paid during the construction period on loans borrowed for creation of assets
shall be capitalized against the respective asset accounts.

12. Loans and Advances

a) Loans given by a GP to beneficiaries under any scheme shall be accounted as assets,

and shall be reduced by payments received or recovery made towards repayment of
such loans.

b) Advances given by the GP to its employees, contractors, suppliers, or any other persons
shall be accounted as assets, and reduced by payments received or recovery made
towards repayment of such advances.

c) Interest on loans and advances shall be recognized on accrual basis as and when it
becomes due.

d) Interest on loans to beneficiaries under a scheme, to the extent to be remitted to the

funding agency, shall be treated as a liability as and when collected.

TALUK PANCHAYAT ACCOUNTS

The TP accounts staff maintains the registers mentioned in the KPRTP (F&A) Rules and
certain additional registers for the purpose of control. In order to suit the accounting system
prescribed, certain new registers have been prescribed in this manual. The manual has also
modified formats of the existing registers as necessary. Certain registers not relevant in the
present day context due to simplification have been left out. The key registers based on
which the accounts are compiled in a TP are:
UNIT 3: ACCOUNTING FOR RURAL LOCAL GOVERNMENTS

1. Treasury Release Register: receipt of grants during a period.

2. Receipts & Expenditure Tracking (RET) Register: expenditure incurred during a period
head of account wise.

3. Collection & Remittance Register: own source receipts during a period.

4. DCB Register: receivables position as on a date.

5.Scheme cash book: Closing balances of scheme bank accounts of the TP as well as the
LD DDOS.

6. Scheme ledger: Income and expenditure details under schemes.

7. Treasury Fund Watch Register: Closing balances of fund accounts of the Treasury.

ZILLA PANCHAYAT BUDGET AND ACCOUNT

Zilla Panchayat Budget

1. Every Zilla Parishad shall, at such time and in such manner as may be prescribed, prepare
in each year a budget of its estimated receipts and disbursements for the following year and
submit it to the Government.

2. The Government may, within such time as may be prescribed either approve the budget
or return it to the Zilla Parishad for such modifications as it may direct. On such
modifications being made the budget shall be resubmitted within such time as may be
prescribed for approval of the Government. If the approval of the Government is not
received by the Zilla Parishad by the last date of the financial year, the budget shall be
deemed to be approved by the Government.

3. No expenditure shall be incurred unless the budget is approved by the Government.

4. The Zilla Parishad may prepare in each year a supplementary estimate providing for any
modification of its budget and may submit it to the Government for approval within such
time and in such manner as may be prescribed.

The Chief Accounts Officer shall advice the Zilla Panchayat in matters of financial
policy and shall be responsible for all matters relating to the accounts of the Zilla Panchayat
including the preparation of the annual accounts and budget. The Chief Accounts Officer
shall ensure that no expenditure is incurred except under proper sanction and in accordance
with this Act and rules and regulations made there under and shall disallow any expenditure
UNIT 3: ACCOUNTING FOR RURAL LOCAL GOVERNMENTS

not warranted by the Act or the rules or regulations for which no provision is made in the
budget.

ZILLA PANCHAYAT ACCOUNT

Accounts Section

It is headed by a senior Officer from the State Accounts Department, designated as Chief
Accounts Officer. This section acts as Finance department as well as Audit department in
Zilla panchayat system. There will be two accounts officers to assist the chief accounts
officer in his duties and functions. The CAO is the custodian of Zilla panchayat fund and
also he advices the chief executive officer and president of the Zilla Panchayat in financial
matters.