Can you tell me what is the Income Tax implication for the Sales Tax Refund ( kind of Government Grant) which is receivablr by the government of Andhra Pradesh.
In case, the amount is taxablte , can u justify, why the tax has to be imposed on such a agrant .
Is it not in the sense that, sales tax department (State Level) is issuing some grant , and at the same time income tax department (Central Level) gets a part out of it ??
Income Tax Department exempts such income which are expressly mentioned in the Income Tax Act.
Income tax is paid after arriving the total income.
The grant of Sales tax department is really meant for compensating the assessee. To the extent the assessee is suffering losses Income Tax is not levied from him. If he is going to be richer, then only he has to bear the tax incidence.
Take an example- Govt increases Salary of its employees according to the recommendations of Pay Commission.
Simaltaneously TDS is being deducted on the increased salaries also.
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