What is a Deferred Sales Tax Waiver?
A Deferred Sales Tax Waiver is a scheme where state governments allow businesses to collect sales tax but defer its payment to promote industrial growth. Later, governments may waive this deferred liability under certain incentive policies.
Key ITAT Ruling: Waiver is Business Income
Recently, the Income Tax Appellate Tribunal (ITAT) ruled that a Deferred Sales Tax Waiver is taxable as business income under Section 28(iv) of the Income Tax Act, 1961.
Reference Case:
- Case: Ghodawat Foods International Pvt. Ltd. vs. ACIT (2024)
- Tribunal: Pune Bench, ITAT
- Key Point: Conversion of deferred sales tax into interest-free loan or waiver amounts to income benefit in the hands of the assessee.
Legal Basis: Section 28(iv)
Under Section 28(iv), any benefit or perquisite arising from business or profession is chargeable to tax as business income. The ITAT clarified:
✅ Waived tax liability = Income benefit
✅ Applies even if converted to loan and later written off
✅ Follows the Supreme Court’s ratio in Sahasra Sugar Mills and similar rulings.
Practical Implications for Businesses
If your business has received a Deferred Sales Tax Waiver:
- Report it as business income: In the year of waiver or conversion.
- Maintain records: Keep state incentive documents and waiver orders.
- Seek expert advice: Misreporting can attract scrutiny and penalties.
Expert View:
Tip: Many companies incorrectly treat waived taxes as capital receipts. Always check if benefits are linked to revenue operations — if yes, they are taxable under Section 28(iv). Consult your CA to avoid future disputes.
Comparison Table: Capital Receipt vs. Revenue Benefit
| Particulars | Capital Receipt | Revenue Benefit (Section 28(iv)) |
|---|---|---|
| Nature | One-time capital subsidy | Recurring operational benefit |
| Taxability | Usually not taxable (specific rules apply) | Taxable as business income |
| Example | Industrial subsidy for new plant | Waiver of sales tax liability |
| Key Compliance | Report under capital gains or exempt | Report under ‘Income from Business’ |
FAQ on Deferred Sales Tax Waiver
Q1. Is every tax waiver taxable?
Only if it relates to operational liabilities. Waivers for capital expenditure need separate analysis.
Q2. When should it be declared?
In the year when the liability is waived or converted to an interest-free loan.
Q3. Which section applies?
Section 28(iv) for benefits arising from business.
Summary
A Deferred Sales Tax Waiver is taxable as business income under Section 28(iv), as held by ITAT. Businesses must disclose it correctly to avoid disputes.
Stay Compliant with Efiletax
Have questions about tax waivers, subsidies or benefits? Connect with Efiletax for hassle-free filings, compliance checks and expert opinions. Explore our services here.