Corporate Social Responsibility (CSR)
Under the Companies Act, 2013 certain companies (which have net worth of Rs. 500 crore or more, or turnover of Rs.1000 crore or more, or a net profit of Rs.5 crore or more during any financial year) are required to spend certain percentage of their profit on activities relating to Corporate Social Responsibility (CSR). Under the existing provisions of the Act expenditure incurred wholly and exclusively for the purposes of the business is only allowed as a deduction for computing taxable business income.
CSR expenditure, being an application of income, is not incurred wholly and exclusively for the purposes of carrying on business. As the application of income is not allowed as deduction for the purposes of computing taxable income of a company, amount spent on CSR cannot be allowed as deduction for computing the taxable income of the company. Moreover, the objective of CSR is to share burden of the Government in providing social services by companies having net worth/turnover/profit above a threshold. If such expenses are allowed as tax deduction, this would result in subsidizing of around one-third of such expenses by the Government by way of tax expenditure.
The existing provisions of section 37(1) of the Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on business or profession. As the CSR expenditure (being an application of income) is not incurred for the purposes of carrying on business, such expenditures cannot be allowed under the existing provisions of section 37 of the Income-tax Act. Therefore, in order to provide certainty on this issue, it is proposed to clarify that for the purposes of section 37(1) any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to have been incurred for the purpose of business and hence shall not be allowed as deduction under section 37. However, the CSR expenditure which is of the nature described in section 30 to section 36 of the Act shall be allowed deduction under those sections subject to fulfillment of conditions, if any, specified therein.
This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years.
MY question is —-if company donate to Individual worth of Rs.2lakh for heart surgery is covered under CRS.
Hi,
Does it Mean that from 2015 CSR spend will be calculated from PAT rather than PBT according to sec 198 ??????
Please response to this que.
Thanks a ton
However it is true CSR expenses cannot be claimed as deduction for tax purposes,but the story doesn’t end here. As per Schedule VII of CA 2013 there are certain activities which coincides with that of Sec 30-35 of IT Act(mentioned below) but there is one prior condition, once these activities are chosen the company should spend on to same activities in the succeeding years.
Activities-:
Sec-35CCA- Donation for Development Fund(Claim 100%) that includes-:
1. Rural Development program(Schedule VII),
2.Association engaged in training programs in rural area (Schedule VII)
3. National urban poverty eradication fund(Schedule VII)
Sec-35CCD- Expenditure on skill develoment program(Claim-150%)
It is covered under CSR Schedule VII as vocational training
Sec-35AC- Any eligible project notified by CG which promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups;(Schedule VII)
List of eligible projects that should schedule VII provisions-
https://taxguru.in/income-tax/section-35ac-read-explanation-thereto-incometax-act-1961-eligible-projects-schemes-expenditure-notified-eligible-projects-schemes-notification-noso406e-dated-932012.html
35(2AA)- Donation to national lab/IIT etc( Claim- 200%)
Schedule VII- Contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Govemment
As of now, there are around 27 technology business incubators located inside academic institutions like National Institute of Design (NID), Indian Institutes of Technology (IIT), National Institutes of Technology (NIT), Indian Institutes of Management (IIM), Engineering colleges and other technical universities in the country. These incubators were set up by the National Science & Technology Entrepreneurship Development Board (NSTEDB), which was established in 1982 by the Government of India under the Department of Science & Technology.
The list activities in these sections is not exhaustive.
My question is — if a company donates to a registered charitable trust (which has 80G benefit) can the amount donated be considered as a spend under CSR?
As per this, CBDT will not allow any CSR expenses in calculation of Taxable income. Hence all CSR expenses will be treated as disallowed. In one side Co Act 2013 mandates to spend but in other Act will not allow in deducting. Like this there are so many expenses spent by corporates for example abnormal consumption of resources should not allow in computation. Abnormal usage of scarce resources may lead to make cost conscious nation and ultimately India will enjoy more GDP.The CBDT should understand the difference between “COST AND EXPENSES”
CMA ASIM SAHA (in practice)
Very nicely explained. I was wondering why CSR can’t be deducted from taxable income and I found the perfect logic here.
Thank you so much.