Income tax on subsidy?

Tax queries 3600 views 5 replies

P C Agrawal

Registered independent director Past Ch

8229 Points Joined March 2007

Dear friends,

Government of Maharashtra has announced Package Scheme of Incentives 2007 under which subsidy is given to new units and also for expansion in backward areas. The maximum amount of subsidy is restricted to specified percentage of fixed capital investment made. However, entire amount is not given in one stroke. It is given over a period of years and the amount is limited to specified percentage of VAT collected during each year. Whether such subsidy will be treated as capital receipt or revenue receipt and as such whether it will be taxable under Income Tax Act?

Thanks in advance.

Replies (5)

CA. ANKUR JAIN

CA.....

2800 Points Joined December 2007

If the subsidy is linked with the capital investmentt then it must be a capital receipt

P C Agrawal

Registered independent director Past Ch

8229 Points Joined March 2007

It is related to both - capital investment as well as VAT collected. Initially Eligibility Certificate will be issued based on certain percentage of fixed capital investment. Subsequently, disbursement will be made every year based on certain percentage of VAT collected (subject to overall ceiling given in Eligibility Certificate). Copy of the Scheme is attached for ready reference. Pl. advise.

ravi mohare

CMD

29 Points Joined May 2010

Mr Agrawal,

The said subsidy is capital receipt and not taxable.

Please refer following case laws,

1. Sasisri Extraction Ltd.

2. Indorama textile vs DIT

3. Reliance industries

Where it was held that the said subsidy is for acceleration of industrialization and upliftment of backward area. Thus, the said subsidy does not intended to meet cost of setting of project. Hence, S 43(1) Explanation 10 is not applicable and there is no need to reduce it from blocks of asset.

sapna

article

90 Points Joined February 2010

Sir, But then what about the depreciation that has been allowed as per income tax in the previous year uptill when the subsidy is not received (in case of capital asset)? Shall it be added back in the year of receipt or not?