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 http://taxindiaupdates.in/taxation-of-subsidy-under-income-tax-law/
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).
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