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May 09, 2016 Registrationwala

Tax Implication on CSR Expenditure

Updates From Taxation

Tax Implication on CSR Expenditure

Section 135 of the companies Act, 2013 govern the provisions regarding the CSR spending of the business, which makes India as a leading country in the world that mandates to certain class of companies to spend a small part of their profit on social activities.

Applicability of CSR provision:

Companies having above attributes are required to spend at 2% of their average net profits made during the last three years on CSR activities as indicated under schedule VII.

Activities for CSR spending under Schedule VII:

 

Tax Implication on CSR activities:

Income tax Act, 1961 provide tax deduction for donation and contribution. There is also other section in the Income Tax Act, 1961, which is section 37 mandating certain deduction in respect of general business expenditure. Therefore, the business houses were contemplating some sort of deduction in respect of CSR spending in line with Income Tax provision.

But legislature’s intention was to treat this CSR spending as appropriation of profit rather than considering it as a charge on profits like any other expenses e.g. rent, electricity charges etc.

Is it possible to undertake these activities by establishing some other entities like trust or section 8 companies?

Most companies contemplating to open a separate entity because in this way companies are eligible to claim deduction under section 80 G.

Therefore, corporate are considering to work through these elements like altruistic trust or organizations which are establishments secured directly under the important concession of CSR expenditure under Income tax Act.

There are some relevant provisions under the Income Tax Act which must be bear in mind before launching CSR programme e.g. section 35C, 37 and section 80G.

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