Capital Subsidy & Training Subsidy

[velayutham panchatcharam]

I am working in MNC which is located a Unit in SEZ. We have received capital subsidy and training subsidy. For both subsidy what is the impact on tax aspects. Please clarify with case laws.

[DEV KUMAR KOTHARI]

From whom subsidy is received? What is purpose and scheme of subsidy? What are obligations attached with receipt of subsidy? Whetehr subsidy is for meeting costs of assets or for the purpsoe of general public welfare like development of particualr area or industry? These are important aspects to be consdered. Generally capital subsidy to meet part fo cost of assets will go to reduce cost of assets as per S. 43 of IT Act,as it stands now. However, in some circumstances it may not go to reduce the cost of assets adn can be consiered as 'capital receipt', neither taxable nor reducable from cost of assets. Training subsidy can be reduced from training expenses- it will be in nature of revenue receipt as it is to meet revenue expenses. In case trainign costs are capitalized and amortized, then also trainign subsidy will be reduced from amortized costs. In this case also on consideration of purpsoe and schem of the subsidy a case of capital receipt can be madeout. However, in case of SEZ unit, will it make much difference? This is also to be considered because you have various exemption.

AI Summary

Capital subsidy treatment: reduces asset cost under tax law, while training subsidy offsets training expenses; scheme and purpose determine treatment. Capital subsidy ordinarily reduces the cost of assets for tax purposes, but may be characterised as a capital receipt depending on the subsidy's purpose, scheme and obligations. Training subsidy normally reduces training expenses (or reduces amortised capitalised training costs where applicable). SEZ status and specific exemptions must be considered when determining tax treatment.