No income tax on LPG subsidy, says Finance Ministry
Moneylife Digital Team 05 May 2015
The Finance Act treats all subsidies, grants, cash incentives, duty drawbacks, waiver, concessions and reimbursements as taxable income. However, the Finance Ministrty has claried that there would be no income tax on LPG and other welfare subsidies for individuals
 
UPDATE: Updated to include clarification from Finance Ministry
 
First, the union government made it mandatory for every consumer to avail subsidy benefit for the liquefied petroleum gas (LPG) refill through bank accounts. However, to the shock of most taxpayers, who are receiving such subsidy, the amendment in the Finance Bill has termed this as income, and thus liable for taxation. Earlier, experts were divided whether such subsidy was taxable under the Income Tax (I-T) Act as there was no clear guidance from the authorities. Late in the evening (after this article was published), the government clarified that provision in Finance Bill 2015 won't affect the LPG subsidy and other welfare subsidies received by individuals.
 
The Finance Bill, 2015, as passed by Lok Sabha on 30th April has specified that subsidies no longer would be treated as capital gains, but as income (revenue receipt). The amendment in the definition of 'Income' under Section 2(24) in the Finance Bill, 2015, says, "A new sub-clause (xviii) is proposed to be inserted in Section 2(24) to provide that assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State 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 included in assessee's income."
 
This in other words any subsidy that is not reduced from the actual cost of the asset in view of provisions of Explanation 10 to Section 43(1) will be taxable as revenue receipts of the assessee.
 
This includes the subsidy for LPG refill as well. However, there are still some flaws in the taxability of subsidy for LPG. Some experts feel that the consumer pays in full towards buying the LPG refill at market price, for which she may already be paying income tax. Since the government is simply reimbursing the subsidy amount, it may lead to double taxation. 
 
For example, for a LPG refill the consumer pays about Rs650 as full market price from her pocket. Next the government reimburses around Rs200 (actual amount may differ), the difference between subsidised price and the full market price. The consumer may already be paying income tax on the total amount of Rs7,800 (Rs650x12 LPG refill per year). If she receives Rs2,400 as subsidy, then as per the Amendment in the Finance Bill, her tax liability would increase by this amount. 
 
So in the end, the consumer would end up paying income tax on Rs10,200 (Rs7,800 actual payment +Rs2,400 LPG subsidy). If the consumer is in the highest tax bracket, then she will have to pay Rs3,060 towards the income tax, instead of Rs2,160 she is already paying. An additional burden of Rs900 because of the LPG subsidy.
 
It is preposterous to treat LPG subsidy as income, as it is contrary to reason. It is only a refund of the excess amount paid by the consumer to the gas dealer, which the oil company refunds to the beneficiary to comply with the government order to sell the LPG cylinder at the stipulated price to the users. It is therefore, impetuous for Finance Minister Arun Jaitley and the Modi government to take a view that this amount is taxable at the hands of beneficiaries.
 
So what is the way forward? If the Narendra Modi government is serious about providing subsidy, then there is a need to make exemptions, especially for subsidies provided as social benefits, like LPG subsidy. If there is no exemption provided, then honest taxpayers and a very large number of them will have to pay more tax.
 
 UPDATE:
The Finance Ministry, in a clarification, has said that the provision in the Finance Bill will not affect LPG subsidy and other welfare subsidies received by individuals.

"The Income Computation and Disclosure Standards (ICDS) notified by the Central Board of Direct Taxes (CBDT) is applicable to persons having income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" and following Mercantile System of Accounting. This is not 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 individual. The Finance Bill, 2015 proposes to align the definition of Income with that provided in ICDS for this purpose. To restate the position, the provision in the Finance Bill, 2015, will not affect the LPG subsidy and other welfare subsidies received by individuals," the Finance Ministry said in a release.
 
 
Comments
Aditya Soni
9 years ago
Subsidies are financial help provided by government to their economically weak citizens. So How can government apply income tax on subsidies. On the other hand Mr. Modi introduces LPG subsidy surrender/give up scheme, this should be adopt by people who are financially strong.

give up subsidy here- http://www.getlpgsubsidy.in
R Varadarajan
9 years ago
Although the Oil price has fallen from US$106 to US$ 64, reduction of nearly 35% taking into exchange fluctuation, the reduction of Petrol and Diesel Prices are just about 11%. The difference of Rs.16/ & Rs12/ in the case of Petrol and Diesel would translate into a fortune if some one calculates the total difference on the total consumption of 25& 80 Million Ltrs respectively.Perhaps Moneylife could post the details of consumption and annual price difference not passed on to the consumers !!!
SuchindranathAiyerS
9 years ago
India's rulers are adept at stealing from Indians. Like the Constitution they say is mighty fine, it gives hundred rights and takes back ninety nine!
Bal krishna Gupta
9 years ago
The actual subsidy per cylinder is just Ra. 169.57. (I got one credited in my account today). So for those consuming 12 subsidised cylinders it amounts to Rs. 2034.38 per annum.
Out of 15 crore users, hardly 3 crore pay Income Tqax and almost 70% fall in 10% bracket. Their out go will therefore be hardly Rs.200 per annum.
It is not even certain whether this is taxable or not.
Even if it is taxable or not is it ok to make such a Hula Gulla about such a significant amount.
My family of four consumes just 6 cylinders a year. Those consuming 12 cylinders will have more than one earning members and can easily afford this Rs. 200-300 tax.

1. Due to direct transfer, the problem of ghost users and

2. Black marketing will reduce to a great extent.

3. Genuine users will get gas on time and

4. Waiting period would vanish.

5. Sale of gas to commercial users at higher prices would increase.

6. This will help gas companies to reduce their losses.
S K Gupta
9 years ago
Its a blatant preying on ignorant masses. Politician are happy making a free lavish living on public exchequer and bureaucrats have nothing to loose.
J Pinto
9 years ago
Government and bureaucracy are not known for their wisdom. Quite the contrary in fact.
Paras Savla
9 years ago
Press release issued by Finance Ministry states LPG and other welfare subsidy are not subject to income-tax http://pib.nic.in/newsite/PrintRelease.a...
Davidson D
9 years ago
According to me the burden would be on Rs. 2400 (200*12)@ 30.9% which works out to Rs.742 (Rs. 62 p.m.) additional tax burden. If the Govt. wants to tax subsidy,, then let them reduce entire value paid at the time of refill from total income so that consumers are in advantageous position.Every successive govt. seems to be worse than a pauper. This methodology of charging full price on refill and then crediting differential as subsidy in itself is a ridiculous way of handling subsidy. OMC have the no. of cylinders at subsidised rate, let them bill for 12 cylinders at subsidised rate and clear balance with full value. This would eliminate the round about method of crediting subsidies, tax implications can be eliminated, additional burden on banks of crediting subsidies to every account linked to Aadahar also gets eliminated. This would be a win win situation for consumers, banks, govt.
LALIT SHAH
9 years ago
All LPG cylinders holders pay attention
Is there actul subsidy on gas ?
All omc paying huge salery to its staff make everyone jillious. Also making heavy profit and paying aflatoon divided to government.
As far Gas subsidy is a great blunder run by this and previous government. And making public full.
Yday to news in navgujrat
1, Army has no fund to buy arms
2, We will do propaganda that our government has work in last 11 month says P.M.
And will spend any dam amount for TV PAPER AND INTERNET MIDEA
public knows that P.M. IS moving THIS TO THAT CONTRY ON WORLD TOUR. AND WEARING COSTLY CLOTHS SUITS BOOTS ETC.
PUBLIC WILL REPLY IN COMMING ELECTION.
SO ADVICE P.M. TO LET YOUR WORK SPEAK AND AAM PUBLIC KI DAL ROTI KI THALI PE BURI NAZAR NA DALE
MINISTERS AUR GOVERNMENT EXPANCE KO LAGAM DO
Ravindra Shetye
9 years ago
This is not the limit of their intelligence. They may come out with brighter ideas of Taxtortion for sure. Do they also tax the subsidy paid to the Oil Companies (with retrospective effect from 1956??
COMEDY CENTRAL realy. Kapil Sharma will blush at such comedies.
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