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The judicial precedents on this issue have held that the nature of a subsidy (i.e. capital receipt or trading receipt) is to be determined with reference to the purpose for which such subsidy is given, i.e. 'purpose test'. In case the subsidy is qualified as 'capital receipt', the same would not be chargeable to tax.

What is Subsidy. Definition: Subsidy is a transfer of money from the government to an entity. It leads to a fall in the price of the subsidised product. Description: The objective of subsidy is to bolster the welfare of the society. It is a part of non-plan expenditure of the government.

When government subsidies are implemented to the supplier, an industry is able to allow its producers to produce more goods and services. This increases the overall supply of that good or service, which increases the quantity demanded of that good or service and lowers the overall price of the good or service.

A government subsidy loan for businesses is a financial assistance program provided by the government to support and promote the growth of businesses in various sectors. It offers loans at reduced interest rates, with a portion of the interest being subsidized by the government.

Key Takeaways. A subsidy is a direct or indirect payment to individuals or firms, usually in the form of a cash payment from the government or a targeted tax cut. In economic theory, subsidies can be used to offset market failures and externalities to achieve greater economic efficiency.

By receiving additional federal subsidies, many taxpayers no longer qualify for the state subsidy they received and therefore must pay this amount back with their tax return.

Benefits of subsidies Maintenance of vital industries: Subsidies help keep some older but important industries, like farming, more functional even as technology advances. Moderation of supply and demand: Subsidies can increase the supply of goods because they reduce how much it costs businesses to manufacture them.