Section 15(2)(e):- Value of Supply shall include subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments.
An Incentive is something that motivates an individual to perform an action. The study of incentive structures is central to study of all economic activities (both in terms of individual decision making and in terms of co-operation and competition with a larger institutional structure).
A subsidy is a benefit given to an individual, business or institution, usually by the government. It is usually in the form of a cash payment or a tax-reduction. The subsidy is typically given to remove some type of burden, and it is often considered to be in the overall interest of the public, given to promote a social good or an economic policy.
Thus, it gets amply clear from the above that the subsidy is related with State welfare of the public or it is provided to a person or a business by various Government, non-government agencies, to rationalise the cost impact directly/indirectly on the public. On the other hand, the incentive is provided to a specific person or business for recognition of noble work or to provide motivation for a specific work.
CG AAR:- The tax liability on the incentive amount erroneously assuming the same to be as subsidy, claiming treatment of such amount received as incentive for the services supplied, as exempt supply is not sustainable under law and merits rejection. Thus the incentive amount is included in total value of supply and liable for tax.