Introduction:
Delve into the nuanced world of calculating Corporate Social Responsibility (CSR) net profit under Section 135, Section 198, and prescribed rules for the fiscal years 2022-2023, 2021-2022, and 2020-2021. This comprehensive guide navigates through the intricate components, including NPAT, credits, deductions, and exclusions, shedding light on the accurate determination of CSR obligations.
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CALCULATION OF NET PROFIT (SECTION 135) | 2022-2023 | 2021-2022 | 2020-2021 | |
| A | NPAT | ||||
| B | (+) ADD (CREDIT ALLOWED) | ||||
| Bounties and subsidies received from any Government, or any public authority constituted or authorised in this behalf, by any Government, unless and except in so far as the Central Government otherwise directs. | |||||
| Total | |||||
| C | (-) LESS (CREDIT DISALLOWED) | ||||
| a | Profit by way of premium on shares or Debenture of the Company.
Note – Such Profits are disallowed as Premium is received on capital hence it is part of capital, it’s not revenue that Company earns from its routine business. And if Company earns it from routine Business-like Investing Company, then such Profit should be considered as Profit and added to NPAT |
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| b | Profits on sales by the company of forfeited shares
Note – When Company forfeits shares and again reissues shares, Company earns profit but Such Profits are disallowed as it is part of capital, it’s not revenue hence it is disallowed. |
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| Profits of a capital nature including profits from the sale of the undertaking or any of the undertakings of the company or of any part thereof
Note – As its not revenue profit and it’s in Capital nature hence such Profits are excluded while calculating Profit under section 198 of the Companies act 2013. This provision is not applicable if Company is in business of buying and selling any such property or assets. Provided that where the amount for which any fixed asset is sold exceeds the written-down value thereof, credit shall be given for so much of the excess as is not higher than the difference between the original cost of that fixed asset and its written down value; |
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| d | Any change (Surplus) in carrying amount of an asset or of a liability on account of fair value.
Note – It’s nothing but a profit arises from Difference of Book value and fair value, such profit is unrealised gain, hence its disallowed |
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| e | Any amount representing unrealised gains, notional gains or revaluation of assets
Note – such profit is unrealised gain, hence its disallowed |
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| Total | |||||
| D | (-) LESS (DEDUCTION ALLOWED) | ||||
| a | All the usual working charges | ||||
| b | Directors’ remuneration | ||||
| c | Bonus or commission paid or payable to any member of the company’s staff, or to any engineer, technician or person employed or engaged by the company, whether on a whole-time or on a part-time basis | ||||
| d | Any tax notified by the Central Government as being in the nature of a tax on excess or abnormal profits; | ||||
| e | Any tax on business profits imposed for special reasons or in special circumstances and notified by the Central Government in this behalf; | ||||
| f | Interest on debentures issued by the company; | ||||
| g | Interest on mortgages executed by the company and on loans and advances secured by a charge on its fixed or floating assets; | ||||
| h | Interest on unsecured loans and advances; | ||||
| i | Expenses on repairs, whether to immovable or to movable property, provided the repairs are not of a capital nature; | ||||
| j | Outgoings inclusive of contributions made under section 181; | ||||
| k | Depreciation to the extent specified in section 123; | ||||
| l | The excess of expenditure over income, which had arisen in computing the net profits in accordance with this section in any year, in so far as such excess has not been deducted in any subsequent year preceding the year in respect of which the net profits have to be ascertained; | ||||
| m | Any compensation or damages to be paid in virtue of any legal liability including a liability arising from a breach of contract; | ||||
| n | Any sum paid by way of insurance against the risk of meeting any liability such as is referred to in clause (m); | ||||
| o | Debts considered bad and written off or adjusted during the year of account. | ||||
| Total | |||||
| E | (+) ADD (DEDUCTION NOT ALLOWED) | ||||
| a | Income-tax and super-tax payable by the company under the Income-tax Act, 1961 , or any other tax on the income of the company not falling under points of (d) and (e) of Point D; | ||||
| b | Any compensation, damages or payments made voluntarily, that is to say, otherwise than in virtue of a liability such as is referred to in point (m) of point (4); | ||||
| c | Loss of a capital nature including loss on sale of the undertaking or any of the undertakings of the company or of any part thereof not including any excess of the written-down value of any asset which is sold, discarded, demolished or destroyed over its sale proceeds or its scrap value; | ||||
| d | Any change in carrying amount of an asset or of a liability recognised in equity reserves including surplus in profit and loss account on measurement of the asset or the liability at fair value. | ||||
| Total | |||||
| F | (-) Exclude | ||||
| Rule 2(h) | any profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise | ||||
| Dividend Received by Company | |||||
| Total | |||||
| Total of (A+B+C+D+E+F) |
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Disclaimer: In no event shall the author be liable for any direct, indirect, special, or incidental damage resulting from the use of this information. Caution and professional advice are advised for precise application.
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