Are direct tax subsidy payouts liable to be taxed?
The above question appears as a shocker if not a certain heart attack for anyone who didn’t think about this side of the story at all. In a nation, where only two ‘big’ truths rule the roost, namely death and taxes, the above made statement shouldn’t be something out of the blue. At least, I was not surprised much after reading the article on Economic Times this afternoon.
What does the article articulate? It says there is no clarity among tax experts regarding the money that government is transferring to bank accounts of LPG consumers in the nation.
They are unsure whether the money that is directly moved to the bank accounts of consumers as LPG subsidy is liable to be taxed or not. This is something interesting and on performing some quick research on internet,
I realized that there are actually no specific guidelines in place, at present, regarding taxing such type of subsidy payouts, which are probably seeing the light of the day for the very first time in our country. There are no circulars issued by the concerned department to the income tax officers in this respect, clarifying the category of this income.
Until now, income tax department is indecisive on what kind of view to take on the respective matter. As per the direct tax subsidy scheme, the government transfers the given amount to the bank accounts of the individuals.
The customer pays upfront payment (as per existing market rates) on receiving the delivery and later on the subsidy is transferred to his bank account. An LPG cylinder costs around Rs 1,050 and the government pays a subsidy of Rs 630 on the amount, at present.
In case income tax department plans to the tax the subsidy amount, treating it as an income, their decision is liable to be taxed in the court of law. They may even be penalized by the court. Interestingly, their taxing of the subsidy amount maybe equivalent to reduction of the subsidy and this would be against the spirit of the scheme laid out originally to plug the leakage of subsidy amount.
Subsidies can be classified mainly as capital (for purchasing assets) and revenue (used for day to day activities) subsidies. Usually, corporates which receive subsidies from the state or central government also pay taxes.
An Indian national is eligible to receive 9 cylinders and subsidy of Rs 5,670 annually. Experts believe that someone under 30 per cent tax bracket would be liable to pay as high as Rs 1,700 on a yearly basis if the subsidy amount gets accountable to be taxed. However, those who don’t have a taxable income won’t feel any impact even if the subsidy amount becomes predisposed to be taxed.