Tax treatement and accounting of subsidy amount

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himanshu khariwal (Querist)
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13 February 2014 Dear expert,
Any company is plan to established project in MP and as per promotion of project in backward area state govt. give subsidy in form of waived 75% of VAT liabilities of every year up to 10 years or up to project cost meet w.e. is earlier.
please clarify what accounting treatment of that VAT subsidy. If it cosider revenue or capital grant as per AS- 12 and if it consider capital grant than what way to accounted by way of lump sum subsidy or deffered subsidy and if we consider lump sump than actual grant amount is not measurable and if it consider deffered capital grant then what way to accounting and what effect on taxable income on the basis of deprisastion adjustment of Investment and net taxable income of that deffered grant .
If possibel then give example to easy understandable for me of tax treatement.In any Clarification require regarding question then please call me on below contact no.

Nitin Bhuta

Nitin Bhuta (Expert)
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13 February 2014 Normally accounting treatment is dependent on stipulations provided for such business set up.

As I understand two options are available

Option I - to treat as revenue and offer grant received as taxable u/s 28.

Option II- to treat as Captial Grant and deduct subsidy quantifiable every year from respective Fixed Assets. You can reduce value of WDV u/s 32 every year.

you need to see the feasibility and treat the same accordingly in books of accounts by explaining accounting treatment in your financial statements in a consistent manner.