SPECIAL LAWS

UNIT-5 SHORT NOTES

FINANCIAL REGULATIONS/FINANCIAL CODE

GENERAL PRINCIPLES
(Kenh General Rule finance Related Authoritiyan Mutalik)
PRINCIPLE DESCRIPTION

Spend public money as if it were your

Financial Propriety
own

Sanction First No expenditure without prior sanction

Officers are answerable for

Accountability
losses/violations

Rule of Lapse Unspent grants lapse at year-end

No Retrospective
Must get approval before spending
Sanction

Avoid Waste Ensure economy and value for money

Proper Records Maintain accurate and auditable records

Separation of Duties Prevent misuse through role division

Submit claims promptly to avoid

Timely Billing
delay/loss

Finance Consultation Major proposals require financial vetting

No overstaffing, wasteful expenditure,

Economy & Efficiency
etc.

Reappropriation Allowed within limits and with approval

CHECK ON REVENUE AND RECIEPTS
1. Proper Assessment and Timely Collection
• All taxes, duties, fees, and other dues must be:
o Correctly assessed,
o Promptly collected, and
o Fully credited to the Government account.
• Delays in assessment or collection lead to revenue loss and
must be avoided.

2. Responsibility of Controlling Officers

• Heads of Departments and Drawing & Disbursing Officers
must:
o Watch that all receipts due are demanded,
o Ensure remittances to treasury, and
o Prevent any form of under-assessment, evasion, or
fraud.

3. Monitoring and Reconciliation

• Regular monthly reconciliation should be done between:
o Departmental figures, and
o Treasury / Audit Office accounts.
• Ensures accuracy and detects discrepancies in receipt
records.
4. Audit and Internal Checks
• Revenue receipts are subject to:
o Audit by Accountant General, and
o Internal departmental audit wings.
• Internal check should include:
o Verification of challans,
o Cross-checking assessments, and
o Scrutiny of concessions or remissions granted.

5. Avoidance of Revenue Arrears

• Steps must be taken to:
o Recover arrears of revenue,
o Avoid accumulation of irrecoverable dues, and
o Maintain proper arrears registers.

6. Prohibition on Unauthorized Collection

• No department may levy or retain any fee or receipt not
authorized by:
o Law,
o Rules, or
o Government orders.

7. Use of Correct Receipt Heads

 • All money received should be correctly classified and credited
under the appropriate Major Head / Sub-head of revenue.

8. Refund of Receipts
• Any refund must be:
✓ Properly sanctioned,
✓ Supported by documentation, and
✓ Paid only through treasury or authorized mode.
PAY ALLOWANCE & PENSION (GENERAL RULES)
I. PAY – GENERAL PRINCIPLES
Pay refers to the remuneration drawn by a government servant as
per their appointment to a sanctioned post. It includes basic pay,
special pay, personal pay, or any other form of sanctioned
emoluments.
General Rules:
1. A government servant is entitled to draw pay only for the
duty performed, or when on leave, joining time, or under
specific service conditions.
2. No government servant shall draw pay from two sources
simultaneously, unless expressly authorized.
3. Initial pay is fixed at the minimum of the pay scale unless
otherwise stated by recruitment rules or through pay
protection.
4. Annual increments are granted subject to good conduct and
completion of qualifying service as per the rules.
 5. Stagnation increment may be given if there is no promotional
avenue or further advancement in the scale.

II. ALLOWANCES – GENERAL RULES

Allowances are additional sums of money given to a government
servant to meet specific service-related needs or cost-of-living
adjustments. These do not form part of the basic pay but are linked
with the nature or place of duty.
Common Allowances:
1. Dearness Allowance (DA): To offset inflation and is revised
periodically based on cost of living index.
2. House Rent Allowance (HRA): Provided when government
accommodation is not allotted.
3. Traveling Allowance (TA): Reimburses the cost of official
travel.
4. Conveyance Allowance: Paid to officers who are required to
move frequently for official purposes.
5. Children’s Education Allowance, Hill Compensatory
Allowance, and Hardship Allowance may also be admissible
depending on location or post.
General Conditions:
• Allowances are granted only if the conditions prescribed are
fulfilled.
• These are not admissible during suspension unless
specifically permitted.
• Drawal of multiple overlapping allowances is not permitted.
III. PENSION – GENERAL RULES
Pension is a monetary benefit granted to a government servant
after retirement in recognition of their service. It is a form of
deferred compensation.
Types of Pensions:
1. Superannuation Pension: Granted upon retirement at the
prescribed age.
2. Retiring Pension: Granted on voluntary retirement after
completing required qualifying service.
3. Invalid Pension: For those who retire due to permanent
incapacity.
4. Compensation Pension: When a government post is abolished
and no alternative employment is offered.
5. Family Pension: Paid to the eligible family members after the
death of a government servant or pensioner.
Eligibility and Conditions:
• Minimum qualifying service is usually 10 years for pension
and 7 years for family pension.
• The amount of pension is generally calculated as a proportion
of last drawn salary and qualifying service.
• Pension may be withheld or withdrawn in cases of dismissal
from service or grave misconduct.

IV. PAYMENT AND DISBURSEMENT RULES

 • Pay, allowances, and pensions must be drawn using properly
sanctioned bills, supported by:
o Service records
o Sanction orders
o Budget allotments
• Disbursement is made through treasury or authorized bank
accounts under proper verification.
• Pension Payment Orders (PPO) are issued by the concerned
audit or pension sanctioning authority.

V. OVERPAYMENT AND RECOVERY

• Any overpayment of pay, allowances, or pension, whether
due to error or misrepresentation, is liable to be recovered in
full.
• Exceptions to recovery may be allowed under special
circumstances with approval from the competent authority.

VI. LEAVE SALARY AND SUBSISTENCE ALLOWANCE

• Leave salary is paid during sanctioned leave as per rules
depending on the type of leave.
• Subsistence allowance may be paid during suspension,
generally at 50 percent of the basic pay, subject to revision
and conduct.
CONTINGENCY,STORES,WORKS
I. CONTINGENCIES
Contingent Expenditure refers to expenditure incurred on items of
a recurring or non-recurring nature required for the day-to-day
running of an office or department.
Categories:
1. Recurring Contingent Expenditure:
o Paid regularly, such as electricity, water charges,
telephone bills, stationery, rent, etc.
2. Non-Recurring Contingent Expenditure:
o One-time or occasional, such as purchase of furniture,
office equipment, repairs, printing, etc.
Key Rules:
• Must be essential, economical, and within budgetary limits.
• Requires sanction by competent authority as per delegation
of powers.
• All vouchers and bills must be properly maintained and
auditable.
• Drawn under contingent grant head from the budget.

II. STORES
Stores include all articles and materials (excluding books and
publications) purchased for use in government offices or for public
works.
Types:
• Consumable Stores: Used up quickly (e.g., stationery, fuel,
medical supplies).
 • Non-Consumable/Dead Stock: Last for a long period (e.g.,
furniture, computers, machinery).
Principles:
1. Indents and Approvals:
o Store items should be indented properly based on need
and approved by the competent authority.
2. Procurement Rules:
o Must follow principles of transparency, competitive
bidding, reasonability of rates, and economy.
o Governed by GFR and Manual on Procurement.
3. Stock Registers:
o Entries must be recorded for every purchase and issue.
o Separate registers for consumable and durable goods.
4. Annual Verification:
o Physical verification of stores is compulsory at least once
a year by an officer other than the storekeeper.
5. Disposal of Surplus/Obsolete Stores:
o Must follow prescribed procedures for auction,
condemnation, or transfer.

III. WORKS
Works refer to construction, maintenance, repair, or modification of
government buildings, roads, irrigation structures, etc., executed
through the Public Works Department (PWD) or other authorized
agencies.
Classification:
• Original Works: New constructions, additions, or alterations.
• Repair Works: Maintenance and repairs of existing assets.
Important Rules:
1. Administrative Approval & Technical Sanction:
o Every work requires administrative approval (financial
consent) and technical sanction (engineering clearance).
2. Estimates:
o Detailed cost estimates must be prepared and
sanctioned before starting the work.
3. Tendering Process:
o Open, limited, or single tender systems used depending
on the value of the work.
o Must comply with e-procurement and transparency
norms.
4. Measurement Books (MBs):
o Work done must be measured and recorded in MBs
signed by the engineer and contractor.
5. Completion Certificate:
o Issued after the work is completed and verified.
6. Payments:
o Payments are made in stages (advance, running bills,
final bills) only after certification.
7. Audit and Vigilance:
 o All works are subject to audit by finance and technical
wings.
o Any irregularities may lead to recovery and disciplinary
action.
MISCELLANEOUS EXPENDITURE,LOCAL FUNDS AND SERVICE
FUNDS
I. MISCELLANEOUS EXPENDITURE
This refers to expenditure that cannot be clearly classified under
any specific head but is necessary for the functioning of
government departments or agencies.
Examples:
• Expenditure on awards, rewards, grants-in-aid
• Cost of ceremonies, hospitality, protocol
• Contribution to statutory or non-statutory bodies
• Legal charges, court fees
• Compensation for injury or death in public service
Rules:
1. Must be sanctioned by the competent authority under
delegated financial powers.
2. Should be reasonable, necessary, and in the public interest.
3. Requires proper documentation, justification, and must be
drawn against proper budget head.
4. Subject to audit, even if the amount is small or non-recurring.
5. Often requires prior consultation with the Finance
Department (especially for grants, compensations, etc.).
II. LOCAL FUNDS
Local Funds are public moneys handled by local bodies like
municipalities, panchayats, boards, or other institutions established
under state or central legislation.
Sources of Local Funds:
• Taxes, fees, fines imposed by local authorities
• Grants-in-aid received from the government
• Rent from property, service charges
• Contributions, donations, and user charges
Features:
1. Maintained separately from Consolidated Fund of the State.
2. Expenditure must be incurred only for purposes authorized
by law or rules applicable to the local body.
3. Accounts are maintained as per Local Fund Audit Manual or
financial regulations of the state.
4. Subject to audit by Director, Local Fund Audit, or similar
authority.
5. Misuse or misappropriation of local funds attracts disciplinary
and legal consequences.
Control Mechanisms:
• Regular budget preparation and approvals
• Monthly, quarterly, and annual financial reporting
• Internal control and external audit
III. SERVICE FUNDS
Service Funds are funds created and maintained by a specific
department or service to manage particular types of expenditure,
generally out of user charges, departmental earnings, or
subscriptions.
Common Examples:
• Hospital Patient Welfare Fund
• Police Welfare Fund
• Education Development Fund
• Forest Department Working Fund
Characteristics:
1. Not part of general government revenue but are maintained
under special rules.
2. Used for departmental welfare, development, or service
enhancement.
3. Operated under special instructions or schemes notified by
the government.
4. Subject to internal audit, inspection, and sometimes external
audit depending on fund rules.
Rules of Operation:
• Managed by a designated officer or committee.
• Detailed rules for collection, deposit, and expenditure must
be approved.
 • Annual statement of accounts must be prepared and
submitted to the controlling authority.
DEPOSIT & BUDGET,POWERS OF SANCTIONS
I. DEPOSITS
Deposits refer to amounts received by the government which do
not form part of its revenue, but are kept in trust, to be returned or
adjusted after certain conditions are met.
Types of Deposits:
1. Security Deposits – taken from contractors or suppliers as
performance security.
2. Earnest Money Deposits – submitted during tender
processes.
3. Court Deposits – money deposited under legal proceedings.
4. Revenue Deposits – amounts received temporarily against
government services (e.g., forest royalty, irrigation charges).
5. Permanent Advances – given to officers for petty local
expenditure.
Rules:
• Deposits are kept under the Public Account of India/State, not
under the Consolidated Fund.
• Must be properly recorded and classified under correct
deposit heads.
• Should be refunded or adjusted in time when the purpose is
served.
• Unclaimed deposits are treated as lapsed after the prescribed
period (usually 3 years or 5 years).
 • Registers must be maintained and regularly reconciled with
treasury accounts.

II. BUDGET
The budget is the annual financial statement showing estimated
receipts and proposed expenditures for the financial year.
Budget Types:
1. Consolidated Fund Budget – includes revenue and capital
expenditure.
2. Contingency Fund – for urgent unforeseen expenditure.
3. Public Account Budget – reflects transactions like provident
fund, deposits, advances, etc.
Features:
• Prepared by each department in the form of budget
estimates.
• Requires approval of the legislature.
• Budget grants are valid for one financial year only (April 1 to
March 31).
• Re-appropriation, supplementary demands, or revised
estimates are used when needed.
Responsibilities:
• Heads of Departments prepare budget proposals.
• Finance Department reviews and finalizes.
• No expenditure is allowed unless included in the budget and
duly sanctioned.
III. POWERS OF SANCTION
Sanction means the official approval of competent authority for
expenditure, grants, or other financial transactions.
Types of Sanctions:
1. Administrative Sanction – Approval of the necessity of an
expenditure.
2. Financial Sanction – Approval to incur expenditure from
budget grant.
3. Technical Sanction – In engineering works, sanction given by
qualified engineer (for cost and design).
Sanctioning Authorities:
• Different levels of officers have delegated financial powers.
• Sanctions must be within their financial competence, as
defined in:
o Delegation of Financial Powers Rules
o Departmental financial schedules
Principles:
• No expenditure can be incurred without prior sanction.
• Every sanction must be:
o In writing
o Numbered, dated, and entered in a register
o Issued by the competent authority only
• Sanctions must clearly state:
 o Purpose, amount, fund head, conditions, and validity
• Retrospective sanctions are discouraged and require special
approval.

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