Thursday, May 7, 2015

LPG subsidy isn't taxable as it is for welfare of people; Govt. clarifies provision in Finance Bill, 2015

A subsidy is a form of financial aid or support extended to an economic sector (or institution, business, or an individual) generally with the aim of promoting economic and social policy. Subsidies come in various forms - direct one (cash grants, interest-free loans) and indirect ones (tax breaks, insurance, low-interest loans, depreciation write-offs, rent rebate etc.).

There was an unendingdispute between the revenue and the taxpayers about the tax treatment of the subsidy received from Government or any other authority. The revenue always tried to treat subsidy as revenue receipt but the assessees always opposed such treatment and wanted to treat it as capital receipt.

The Government tried to settle this dispute by proposing amendments to the Finance Bill, 2015 as passed by Lok Sabha. It has been proposed that assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession, etc. (by whatever name called) by the Government or any authority or body or agency, in cash or kind to the assesse (other than one considered under Explanation 10 to Section 43(1)) would be includible in income.

In view of aforesaid amendment certain doubts had arisen on tax treatment of LPG subsidy received by individuals under direct benefit transfer. Certain tax experts were of the view that this proposal would deem such LPG subsidy as income of individuals and they would be required to pay taxes on subsidy received in their bank accounts.

In this regard, the CBDT has clarified that the proposed amendment in the Finance Bill, 2015 would not be applicable to individuals not having any income chargeable under the head "Profits and gains of business or profession" and receiving LPG subsidy or any other subsidy which is for the welfare of the individuals. Thus, it has been clarified that LPG subsidy received by Individuals would not be taxable.