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A company receives a government grant of ₹24 lakh that is deducted from the written down value of its block of machinery. Two years later the grant becomes refundable and the company repays it. How…

Question and options

A company receives a government grant of ₹24 lakh that is deducted from the written down value of its block of machinery. Two years later the grant becomes refundable and the company repays it. How does Income Computation and Disclosure Standard VII treat the refund in computing taxable income?

  1. It is ignored, as the grant already reduced the block

  2. It is allowed as a deduction in the year of refund

  3. It is added to the written down value of the block

  4. It is deducted again from the written down value of the block

Answer and explanation

Correct answer: C - It is added to the written down value of the block

ICDS VII on government grants, which continues under section 276(2) of the Income-tax Act, 2025 by virtue of section 536(2)(j), requires a refundable grant relating to a depreciable asset to be recorded by increasing the actual cost or written down value of the block by the amount refunded; depreciation then runs on the increased figure. The refund is not a revenue deduction, because the grant was never taxed as income but only reduced the depreciable base.

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