Subsidy receipt from government

[Ramanathan Seshan]

Dear Experts,

We have received the Integrated Development of Leather Sector (IDLS) subsidy from the government, which we treated as income. However, during our departmental audit GST officers inquired why we have not charged or discharged GST on this subsidy. Our understanding is based on section 2(31) of the GST Act, which excludes government subsidies from GST. 

Unfortunately, the officers are not accepting this explanation. To resolve this issue, we would like to ask if you could provide any notifications or circulars that clarify the GST treatment of government subsidies and confirm that they should not be subjected to GST charges.

Regards,

S Ram

AI Summary

Government subsidy exclusion from GST: central and state subsidies not includible in taxable value under valuation rules.
Government subsidies provided by the Central or State Governments are excluded from the value of supply for GST valuation purposes under the statutory valuation rule; a central circular reiterates that such subsidies are not includible in taxable value and thus not subject to GST, though departmental audits may raise objections and the applicability depends on whether the payer qualifies as "Government" and on the legal weight of circulars vis a vis statutory law.