Decoding CSR from Tax Perspective
Karan Sahi
Deal Advisory I Transaction Tax (M&A) I KPMG | Fund Raising | Private Equity I Ex- EY & Vaish
CSR has been buzz word with coming up of New Companies Act 2013.
Why legislator came up with this provision?
India has one of the lowest tax-to-gross domestic product (GDP) ratios at 15.5 % according to Centre for Budget and Governance Accountability. Even lower middle-income countries had tax-GDP ratios of 17.7 %. Large cash outflow of government is involved due to spending on these social issues. Government wishes to share burden with other stakeholders i.e. Corporates . This was the one of main rationale behind introduction of Sec 135.
APPLICABILTY
Sec 135 is applicable on certain class of company .
- Networth = 500 cr
- Turnover =1,000 cr
- Net Profit = 5 cr .
Profit shall be calculated as per Sec 198 of CA 2013.
TOTAL CONTRIBUTION
- Profit for the purpose of CSR shall be computed = Profit as per 198 - any profit arising from any overseas branch or branches of the company' - any dividend received from other companies in India
- Amount of contribution for CSR activities shall be atleast 2 % of average net profit of 3 preceding financial years on specified CSR activities.
SPECIFIED ACTIVITIES
Contribution made to the activities as specified in Schedule 7 of CA 2013. Some of the CSR activities are as follows
- Eradication of Hunger & Poverty
- Protection of National Heritage, Art & Culture
- Swachh Bharat Abhiyan
- Benefit of Armed Forces Veterans
- Training to Promote Rural Sport
- Rural Development Project
TAX DILEMMA
- Rule 4 CSR RULES 2014 specifies that activities and programs shall exclude activities undertaken in pursuance of its normal course of business. It implies that company shall not be entitled to deduct expenses u/s 37 for the contribution towards CSR expenses.
- No provision or new section has been introduced as on date with regard to Tax benefits towards expenses on such CSR activities
TAX BENEFITS
We can use existing provisions to seek benefits. Sec 80G and 35 comes to rescue and solve our tax dilemma.
1) Companies should provide donation to following trust as specified under 80G whose activities are aligned to SOCIAL ACTIVIES as contained in SCHEDULE VII OF CA 2013. Company shall be entitled for deduction upto 100% of amount donated . For example – Contribution made to PM National Relief Fund .
2) Deduction is allowed for CSR EXPENSES under following provision
Government should provide more incentives in form of tax breaks so to provide motivation for increased CSR activities and encourage larger contribution from private players and corporates .
linkingtribes.com
10 年Companies shall spent amount on CSR in order to improve their overall branding. Classic case is of Indian Tobacco Company (ITC) which was able to change overall perception through these social activities.
Deal Advisory I Transaction Tax (M&A) I KPMG | Fund Raising | Private Equity I Ex- EY & Vaish
10 年Agreed sir .. Companies can come with excuses and mere disclosure is required . Still many companies companies shall be adhering to these provision . It is estimated upto Rs 15,000 to 20,000 crores contribution to be received for the social activity . It is still a very good start .
Vice President(Legal) & Company Secretary at CJ International Hotels Limited
10 年The provision though laudable may not yield desired results as it is not mandatory to contribute. Companies may come up with several excuses in its Director's report to avoid contribution.
Tax Resolution Specialist @ Tax Protection Plus | CPA | Outreach Director @ICAI Philadelphia Chapter
10 年Worth reading
Founder @ Cognoscent Ventures | Startup Investments | Serial Entrepreneur | Venture Builder | Fund Management | Investment Banker | Corporate Strategist | Growth Enabler
10 年Provision of non deduction u/s 37 is actually a hurdle for corporate entities. But really nice article...!!!