Direct LPG subsidy payouts may be taxed: Experts

KOLKATA: The money that the government transfers directly to consumers’ bank accounts as LPG subsidy may well be considered as an income and taxed, say tax experts. There are no guidelines currently on taxing this type of subsidy payouts, and the income tax department may take a view on whether or not to claim a part of it.

“This subsidy is a new development which will accrue in the bank accounts of individuals starting from this year. There are no circular on whether this income should be taxed or not,” a senior income tax department official said. “We assume the department will issue a clarification or a circular on this category of income.”

According to Abhijit Bandyopadhyay, senior partner at Deloitte Haskins & Sells, the Income Tax Act is silent on this kind of subsidies. The tax department may take a view “which may, off course, be challenged in the court of law”, he said.

The subsidy that gets deposited in the bank account is likely to be treated as an income and be taxed accordingly although the amount would be small, said Nabin Ballodia, partner, tax, at KPMG. “It would tantamount to reduction of the subsidy,” he added.

“Subsidies are of two types – capital subsidy and revenue subsidy. While, capital subsidy is for getting assets, revenue subsidy is used for day-to-day activities,” Ballodia said.

Corporates that receive revenue subsidy have to pay taxes. For example, Kolkata Port Trust that receives a few hundred crores from the centre pays taxes on the subsidy.

At present, the price of a cylinder of LPG is about Rs 1,050 and the government pays a subsidy of Rs 630 on it, depositing that amount in the account of consumers in places where the direct subsidy transfer system is already in place. The government started rolling out this program earlier this year.

An individual who receives nine cylinders she is eligible for a year gets a total subsidy of Rs 5,670 in a year. The tax on this could be as high as about Rs 1,700 a year, if the individual comes under the highest tax bracket of 30%. But there is unlikely to be any impact on those who don’t have taxable income.