dear experts, our 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 . Thanks, Himanshu
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Accounting treatement
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Well the treatment is done by a company which I am auditing:
Suppose you have collected VAT on sales of Rs 100 from customer. Your input VAT on purchase is 45. Now the VAt liability is Rs 100-45=Rs 55. Now 75% of 55 is 41.25 or say 41. and the rest is Rs 14. So 14 will be a effective liability to Govt. And Rs 41 is the income (since company has collected it and retained it) so the income is transferred to P/L account. This Income is a direct income and is also taxable under income tax act 1961.
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