20 June 2014
A Board of state Government receive Rs.100 Crore grant from State Government for public facility for the F Y 2013 - 14.I put up entry in Capital A/c.During the year used Rs.30 crore and remains balance Rs 70 investment for 91 Days in Bank..during F Y year I received Rs 10 crore interest on Rs 70 crore.Nw Total Balane Amount is 100 - 30 + 10 = 80 ll be use in F Y 2014-15
My Question is Receive interest Rs 10 crore Taxable ya Not Taxable ?
01 August 2024
In the scenario where a board of the state government receives a grant and earns interest on the unutilized portion of that grant, the taxability of the interest earned depends on the nature of the grant and its utilization.
Here’s a breakdown of the tax implications:
### **1. Nature of the Grant:**
- **Capital Grant:** If the grant is received for capital expenditure (e.g., for constructing a public facility), it is generally treated as a capital receipt. Such grants are not typically taxable as income when received. Instead, they are credited to a capital account and used to offset the cost of the asset being created.
### **2. Interest Earned on Grant Funds:**
- **Interest on Capital Grants:** Interest earned on funds that were received as a capital grant and invested temporarily is usually taxable. This is because the interest is considered as income generated from the investment of the grant amount.
### **3. Tax Treatment of Interest:**
- **Interest Income:** The interest earned on the grant amount, which is ₹10 crore in your case, is considered as income and is subject to tax. It should be declared under the head "Income from Other Sources."
### **4. Accounting and Reporting:**
- **Capital Account:** The grant amount received (₹100 crore) is recorded in the capital account. - **Interest Income:** The interest earned (₹10 crore) should be reported separately as taxable income in the financial statements or income tax returns.
**For Financial Year 2013-14:** - **Interest Income:** ₹10 crore is taxable as income from other sources.
**For Financial Year 2014-15:** - The balance amount (₹80 crore) will include the principal remaining from the grant (₹70 crore) and the interest earned (₹10 crore). This amount will continue to be used for the intended purpose or invested as per the board's decision.
### **Summary:**
- **Interest Taxability:** The ₹10 crore interest earned on the ₹70 crore balance is taxable and should be reported as income for the financial year in which it was earned (FY 2013-14). - **Grant Utilization:** The original grant amount (₹100 crore) is a capital receipt and not taxable when received but should be used for the intended purpose.
For precise compliance and reporting, consulting with a tax professional or financial advisor is advisable to ensure proper treatment of such transactions and adherence to relevant tax regulations.
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