Income tax on subsidy?

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

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.

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.

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? 

A useful article on Taxation of Subsidy under Income Tax Law  as per latest provision of Finance Act 2015.