How to treat the capital subsidy received in subsequent years on cost of plant and machinery for the purpose of calculation of taxable income of a company
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Treatment of Capital subsidy for calculating taxable income
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- Reduce the actual cost of the asset. The capital subsidy is deducted from the original cost of the plant & machinery to arrive at the written down value (DWV).
- Taxability : The subsidy itself is not taxable as income if it is specifically for acquiring a capital asset.
- Depreciation calculation: Depreciation is computed on the reduced cost (original cost minus subsidy) of the asset.
- Accounting treatment: In some jurisdictions, the subsidy may be treated as a deferred income and recognized over the useful life of the asset, but for tax purpose , the cot reduction method i commonly applied.
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