Article 4(3) Income Tax on Grants
- Maulana Ibrahim, Andre Wilson Siregar, Ellicia Emerliawati, & I Made Arya Wira Utama
- 5 days ago
- 4 min read
Grants Exempted as Tax Objects
Grants are one type of asset transfer done voluntarily without any compensation. Mostly, grants are done on the basis of welfare, familial relations, or as a form of support towards social and religious activities. In Indonesia, grants are generally an income tax object. However, not all grants are considered as one. In its practice, grants with certain characteristics and objectives can be exempted from the imposition of the income tax with the aim of aiding non-commercial social activities.
Tax Subject
The tax subject of the tax object exemption on Article 4(3) Income Tax is Individual or Corporate Taxpayers, both domestic and foreign, including:
Blood-related family members in a straight line and/or one degree
Non-profit religious institutions that have been ratified by the government
Non-profit educational institutions
Non-profit social institutions that arrange:
Health maintenance
Elderly maintenance or Nursing homes
Orphan, both fatherless and motherless, maintenance, abandoned children or persons, and disabled children or persons
Aid or help for victims of natural disasters, accidents, and of said nature
Scholarship aid, and/or
Nature conservation
Cooperation
Individuals running small and micro enterprises that fulfill several requirements, including:
Owning net assets with a maximum amount of IDR500,000,000 (five hundred million rupiah), excluding land and building of the enterprise, or
Owning a yearly revenue until IDR2,500,000,000 (two billion five hundred million rupiah)
where there are no business, occupational, ownership, or controlling relationships between related parties.
Non-Tax Object
Grants in the form of cash or goods received by Domestic Individual or Corporate Taxpayers.
Criteria
Grants that are exempt from becoming a tax object must fulfill 2 (two) main criteria, such as:
Grants received by:
Blood-related family members in a straight line and/or one degree
Non-profit religious institutions that have been ratified by the government
Non-profit educational institutions
Non-profit social institutions
Cooperation
Individuals running small and micro enterprises
Grant transfers are done without any business, occupational, ownership, or controlling relationship between related parties.
Definitions of previously mentioned terms, include:
Relationship of business between related parties is a relationship where there are regular transactions between the giver and the receiver.
Relationship of occupation between related parties is a relationship where there is a working, service-providing, or activity arrangement, directly or indirectly, between the giver and the receiver.
Relationship of ownership between related parties is a relationship that happens when there is capital equity given directly or indirectly between the giver and the receiver, as mentioned in Article 18(4) letter a of the Income Tax Law.
Relationship with control between related parties that happens when there is direct or indirect control in the relationship between the giver and the receiver, as mentioned in Article 18(4) letter b of the Income Tax Law.
Specific Requirements
In the case of an ownership or controlling relationship, as previously mentioned, the assets in the form of grants received will be exempted as an Income Tax Object as long as the receiver is a religious, educational, or social, including foundations and institutes.
Grant-Receiver Filing Obligation
The grant recipient will have the obligation to file all assets received from grants in their Annual Tax Returns in the non-taxable objects section.
In addition, grant recipients will also be obligated to file all assets received from grants in the Annual Tax Returns’ asset elements starting from the year said asset is received, with the acquisition value of:
The remaining fiscal book value if the granting party is required to maintain bookkeeping, or
Other values if the giver does not do bookkeeping.
Other values, as mentioned, include:
For assets in the form of land and/or buildings:
the Tax Object Sales Value stated in the Land and Building Tax Payable Tax Notification Letter for the tax year in which the transfer occurred, or
a statement from the Government Agency in charge of regional tax affairs, where the land and/or building is registered in the event that there is no Land and Building Tax Payable Tax Notification Letter.
For assets other than land and/or buildings, the equal amount to the market price of the assets at the time of the transfer.
Case Study
Mr. Budi is an entrepreneur with a newly obtained high amount of profit from his business. Mr. Budi is celebrating his success by handing out 2 (two) cars of similar types to Andi, his one and only son, and Taruna, his deceased sibling’s child, who is now living with him.
For Andi, the grant transaction from his birth father in the form of 1 (one) car unit is not considered as an income tax object due to the fact that he is the biological child of Mr. Budi. Thus, the car grant transaction fulfills the criteria of being given to a blood-related family member in a straight line and/or one degree, and the transaction is done without any business, occupational, ownership, or controlling relationship between related parties.
For Taruna, the grant transaction from his uncle in the form of 1 (one) car unit is considered a taxable object and will be imposed with income tax. This is due to the fact that Taruna is Mr. Budi’s nephew, thus, the grant transaction does not fulfill the criteria of being given to a blood-related family member in a straight line and/or one degree.
Legal Basis
Law Number 7 Year 1983 regarding Income Tax as lastly amended by Law Number 6 Year 2023 regarding Stipulation of Government Regulation in Lieu of Law Number 2 Year 2022 on Job Creation to Become Law
Government Regulations Number 55 Year 2022 regarding the Adjustment of Regulation in the Field of Income Tax
Minister of Finance Regulations Number 90/PMK.03/2020 regarding Aid or Donations, as well as Grants that are Excluded as Income Tax Objects
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