Capital subsidy received by msme is exempted from income tax
This query is : Resolved
08 August 2018
The capital subsidy which is given by State / Central Govt. is exempted from Income tax on what section under Income Tax Act.
08 August 2018
In the Income Tax Act, there is no direct exemption given to the capital subsidy. From various provisions, we can make out that there would be two cases for capital subsidy.
Option 1) The asset is shown at Actually Incurred Cost
Option 2) The asset is shown at Full Cost including Subsidy amount
E.g.
Asset full cost price Rs.100
Subsidy Rs.40
Incurred Cost Rs.60
Here the tax treatment would be at the discretion of the assessee.
If he opts for Option 1) then depreciation would be charged on Rs.60
If he opts for Option 2) then depreciation would be charged on Rs.100
For further details, please refer following link
https://taxindiaupdates.in/taxation-of-subsidy-under-income-tax-law/
Option 1) The asset is shown at Actually Incurred Cost
Option 2) The asset is shown at Full Cost including Subsidy amount
E.g.
Asset full cost price Rs.100
Subsidy Rs.40
Incurred Cost Rs.60
Here the tax treatment would be at the discretion of the assessee.
If he opts for Option 1) then depreciation would be charged on Rs.60
If he opts for Option 2) then depreciation would be charged on Rs.100
For further details, please refer following link
https://taxindiaupdates.in/taxation-of-subsidy-under-income-tax-law/
08 August 2018
1. Should apply purpose test to decide whether it is a capital receipt (tax free)
or revenue receipt (taxable) per decision in CIT V Ponni Sugars & Chemicals Ltd
(2009) 208 Taxation 59 (SC).
2. Taxability or otherwise of the subsidy would depend on the terms of the scheme
per Mepco Industries Ltd. v CIT (2009) 319 ITR 208 (SC).
1. Should apply purpose test to decide whether it is a capital receipt (tax free)
or revenue receipt (taxable) per decision in CIT V Ponni Sugars & Chemicals Ltd
(2009) 208 Taxation 59 (SC).
2. Taxability or otherwise of the subsidy would depend on the terms of the scheme
per Mepco Industries Ltd. v CIT (2009) 319 ITR 208 (SC).
08 August 2018
If you judge it as a capital subsidy, follow explanation 10 to section 43(1) of the
Income tax Act,1961.
Income tax Act,1961.
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- TDS Challan - change of FY 2025-26 to TY 2026-27
- Gst registered proprietorship firm
- Price inclusive or exclusive of GST while made entry in P& L Account
- AUDITOR APPOINTMENT FOR THE YEAR ENDING MARCH 27
- Minimum tax payable to file Updated return
- GST ISSUE OF INPUT AND OUTPUT GST
- Change Of Karta In Case of Death
- GST Intimation due to Government took possession of Business Premises under PPE Act
- Non filing of I T Returns
- UDIN ISSUE
- How to Handle Active E-Invoices in GST Portal Deleted from Tally?
- IMPORT PURCHASE ENTRY PASSED IN BOOKS OF ACCOUNT
- FAST DS 26 Undisclosed Foreign Asset Disclosure Scheme 2026
- Starting trading business
- Regime change
- Goods sold but invoice not issued
- Tally: Imported bank entries do not show up in manual reconciliation
- Sales of goods of amount Rs97 lakhs to a party
- Confused About My Career After 12th — Cyber Security, AI or Finance? Need Guidance
- FAST-DS 2026 Under Tax Law - No recourse or support for person declaring via this scheme?
Trending Online Classes
-
DT & Audit (Exam Oriented Fastrack Batch) - For May 26 Exams and onwards Full English
CA Bhanwar Borana & CA Shubham Keswani
Subscribe to Pro
Join an elite circle of professionals
CAclubindia
