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Shivani Jain (CA, CS)

> What is Corporate Social Responsibility (CSR)?

  • CSR is a sense of responsibility towards community and environment where a company operates. Eg: activities towards promoting health care, gender equality, education etc.
  • Companies Act, 2013 makes it mandatory for prescribed category of companies to invest a certain percentage of their profits in CSR activities every year.

> Relevant GST Provisions

  • Under GST regime, section 7 of the CGST Act, 2017 (‘the Act’) defines the term ‘Supply’ in detail. It includes all forms of supply of goods and services like sale, barter, exchange for a consideration in course or furtherance of business.
  • Further, section 2 of the Act provides that ‘Service’ is anything other than goods, money and securities and also has an inclusive part in it. It also states that the term ‘Consideration’ includes the monetary value of any act in response, respect or inducement for supply of goods or services.
  • In regard to availability of Input Tax Credit (ITC), section 17 of the Act denies the availability of ITC on goods distributed free of cost. However, there is no such provision for the services given free of cost.
  • In general parlance, CSR activities are not considered in the nature of furtherance of business, thus, ITC on free distribution of goods under CSR is not available.

> Advance rulings on CSR

  • In case of M/S Polycab Wires Private Limited, it was held that ITC would not be available for the goods distributed free of cost under CSR activities.
  • In case of M/s Indian Institute of Corporate Affairs, it was held that the amount paid by the companies to external agencies for CSR activities to undertake specified projects would be considered as ‘Consideration’. Thus, executing CSR activities as per companies’ direction would be interpreted as Supply, and GST would be applicable on the same.

The ruling also stated that the Service tax circular 127/09/2010-ST dated 16.8.2010 would not be applicable in this case as there is a nexus between the funds granted and the activities directed to be undertaken. Further, it was also mentioned that if the CSR activities are covered under the charitable activities covered in Notification 12/2017- Central Tax (Rate) (‘Exemption Notification’), then GST would not be levied on such activities.

> Possible modes to discharge CSR liabilities and GST implications

  • CSR activities undertaken by the company on its own through its employees:

No GST liability since no payment made to the external agency. No ITC available on the goods distributed free of cost in CSR activities.

  • Through external agency:

GST applicable except the following services stated in Exemption Notification (provided by entities registered under section 12AA of Income Tax Act):

♦ Training or coaching in recreational activities relating to arts or culture, or sports

♦ public health by way of care and counseling of terminally ill persons or persons with severe physical or mental disability, persons afflicted with HIV or AIDS, persons addicted to a dependence-forming substance such as narcotics drugs or alcohol;

♦ public awareness of preventive health, family planning or prevention of HIV infection;

♦ advancement of religion , spirituality or yoga;

♦ advancement of educational programmes or skill development relating to abandoned, orphaned or homeless children, physically or mentally abused and traumatized persons, prisoners, or persons over the age of 65 years residing in a rural area;

♦ preservation of environment including watershed, forests and wildlife

> To sum up:

S. No. Transaction Taxability
1 Grants in Aid/ Cash donations Not taxable
2a Grants to external agencies for specified beneficiaries where charitable purposes are covered under exemption notification Not taxable
2b Grants to external agencies for specified beneficiaries where charitable purposes are not covered under exemption notification Taxable

> Author’s view:

Since CSR activities is mandatory compliance for companies, it should be considered in furtherance of business. Also, ITC on input goods and services should be allowed. Thus, Government shall take into consideration and issue necessary clarifications.


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One Comment

  1. shivapura says:

    Respected sir /Madam
    i have a doubt
    one Pvt ltd company has ready to build a class room for children,as social work, they are gave contract to us ,
    we need to raise bill for the amount gst is applicable or gst is not there
    can i know sir

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July 2024