Corporates are currently involved in various areas of social responsibility / community development as part of nation building. Further, the concept of Corporate Social Responsibility Costs has been introduced under Companies Act, 2013. The expenditure is mandatory in its nature and as such it is a statutory levy. Accordingly it deserves tax deduction. However, amendment made in section 37 vide Finance (No. 2) Act, 2014 has made it clear that expenditure incurred on activities relating to CSR under Companies Act, 2013 will be deemed to be a non business expenditure. Providing suitable tax incentives in respect of such Corporate Social Responsibility Costs would accelerate the process and ensure that the country can reach the goal of being a developed nation in the near future and is the need of the hour.
It is suggested that:
a) The amendment made in Section 37 vide Finance (No. 2) Act, 2014 should be reconsidered.
b) A deduction of the expenditure on community /social development (both capital and revenue) be introduced, specifically covering critical areas like education, health, animal husbandry, water management, women empowerment, poverty alleviation and rural development.
c) Even in cases where a company has its own trust or foundation, the deduction in respect of expenditure incurred for CSR activities should be allowed.
d) CSR expenditure is allowed by way of donation to Prime Minister Relief Fund/ Trust registered u/s. 80G/ associations approved u/s. 35AC. If deduction of CSR expenditure is not allowed, this shall be discriminatory for those corporates, who may like to carry out CSR activities on their own.
(SUGGESTIONS FOR RATIONALIZATION OF THE PROVISIONS OF DIRECT TAX LAWS)