GST On Subsidy Receipt From Government
1. Ram: I am starting the pharmaceutical factory in rural area near Nagpur. I will be making an investment of around 1 crore in plant and machinery. I will be receiving 70% of investment amount as subsidy from State Government. Do I need to pay GST on it??
Ans: To answer the above question we will have to refer section 7(1) and section 2(31) of CGST Act-2017.
a. Section 7 talks about “supply” which includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.
b. Section 2(31) defines “consideration” which states that any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government.
From the above two definition it is clear to levy GST, primary condition to be satisfied i.e.,
1. There has to be supply as per section 7(1)(a).
2. There has to be consideration. {Subject to Sch I}.
3. Supply should be in course or furtherance of Business.
Definition of consideration clearly excludes subsidy received from Central Government and State Government. Hence you do not need to pay GST on it.
2. Ram: What if I received the subsidy from Local Authority or some Local Institute. Will still I get benefit of non-applicability of GST?
Ans: In such cases GST is applicable as exception is given is only for Central and State Government Subsidy.
3. Ram: I want to pass on the benefit of subsidy to my customer by charging them lower rate to my customer. At what value I need to pay GST?
Ans: To answer this we will have to refer section 15(1) read with section 15(2)(e) of CSGT Act-2017, which specifies about valuation of supplies of Goods and Services
a. Section 15(1): The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.
b. Section 15(2)(e): The value of supply shall include subsidies directly linked to price excluding subsidies provided by central and state government.
Now, to answer above question,
1. In our case since the subsidy is provided by State Government, it will not be added in transaction value and GST shall be payable on value as determined under section 15(1).
2. If subsidy is not provided by State Government or Central Government then we will have to check whether it linked to price of product. If answer to it is yes, it will be added to transaction value.
The view expressed are personnel. Author may be contacted at cashubhamsawal@gmail.com, Mobile: 8888998239