Taxability of LPG subsidy and other direct benefits paid directly into bank accounts of beneficiaries is unclear with tax experts divided on the issue and want an explicit clarification from the government.
Finance Bill, 2015, as passed by the Lok Sabha last week, has expanded the definition of income, that is taxable under the Income Tax Act, 1961, by inserting a sub-clause on subsidies, grant, cash incentive and duty drawback.
Tax experts are, however, divided if the insertions mean that assesses will have to pay tax on subsidies they receive in their bank accounts.
According to the amendments to the Finance Bill, the income shall include “assistance in form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement by the central government or state government or any authority or body or agency in cash or kind to the assessee other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset”.
Commenting on the new clause, KPMG Partner (International Tax) Naveen Aggarwal said: “Evidently, the amendment is very widely worded. It needs to be seen how this is applied by the tax authorities in various situations”.
Consumers receive an equivalent of difference between the market price and subsidised rate of Rs 414 per LPG cylinder in their bank accounts for buying 12 bottles of cooking gas in a year. This amount currently is less than Rs 200 per cylinder.
PwC Leader (Direct Tax) Rahul Garg said: “LPG subsidy, strictly speaking, would be hit by the new law unless it is clarified that such subsidy represents a differential pricing and not a concession”.
BMR & Associates Leader (Direct Tax) Gokul Chaudhri, however, felt that the subsidies under Direct Benefit Transfer (DBT) are taxable.
“In case the above proposal is enacted as law and specific exemption is not provided for LPG subsidy (or other benefits under DBT scheme), such subsidy is likely to be taxable for recipients,” he said.
Beginning with 54 districts last fiscal, the programme to enable consumers to buy domestic cooking gas at market price has expanded to entire country from April 1. The government continues to subsidise 12 cylinders of 14.2-kg each to households in a year.
This subsidy is paid directly into bank accounts of users and the beneficiary then uses it to buy cooking gas at market price. The subsidy transfer this month is Rs 198.18 per cylinder. It was Rs 203.18 in the previous month.
Considering Rs 200 as average subsidy payout for the year, an assessee will receive Rs 2,400 in a year. If the assessee is in the highest tax bracket, he or she will have to shell out over Rs 600 as income tax unless the government clarifies to say that these subsidy and other direct benefit transfers are exempt.