The government has provided clarity on tax aspects of CSR in the Union Budget, which was presented by Finance Minister Arun Jaitley on July 10. Clarifying government stance on the issue of possible tax benefits for CSR activities, the Central Board of Direct Taxes (CBDT) chief said under certain Income Tax Act provisions deductions are allowed for some activities.
He noted that money spent on CSR works is not business expense. ‘But there are certain other Income Tax provisions where deduction is allowed like for farming, for education. "So our view is that there are many activities which are akin to CSR but they are not to be allowed as business expenditure," said Tiwari.
In the Union Budget, the government said that 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 taxable income of the company.
However, deductions could be allowed for certain CSR activities."...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," Budget said.
Emphasising that the objective of CSR is to share the government's burden in providing social services, the Budget said, "if such expenses are allowed as tax deduction, this would result in subsidising of around one-third of such expenses by the government by way of tax expenditure".
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 existing provisionsof section 37 of the Income Tax Act, as per the Budget.
Under this section, 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. Referring to the Budget announcement, Tiwari said, "it is more of a clarification in nature". CSR norms are applicable for companies having minimum net worth of Rs 500 crore or turnover of Rs 1,000 crore or net profit of Rs 5 crore in a financial year.