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Clear air on tax treatment of CSR spend
March, 01st 2014

Corporate India wants the income tax law to be clarified upfront so that their CSR spend will be eligible for deduction for income tax purposes with effect from April 1 next year.

The new corporate social responsibility (CSR) framework comes into effect from April 1.

There is no explicit provision in the income tax law or specific guidance from the Central Board of Direct Taxes (CBDT) on tax treatment of CSR spends by corporates.

All eyes are now on the Finance Ministry—especially CBDT—to provide clarity on tax treatment of CSR contributions.

“The income tax law needs to be clarified to prevent the taxman from treating CSR spends as an appropriation”, Siddarth Birla, FICCI President, told BusinessLine here.

If treated as an appropriation of profits and not as a charge to profits, then the taxman could disallow the corporate claims of such spend as a deductible expenditure.

This would add to the tax bill of corporates making such CSR spends, it was pointed out. While the Corporate Affairs Ministry has come up with CSR framework, the tax treatment of CSR contribution is still not clear, say experts.

“The tax treatment of CSR contribution is not clear as nothing is specifically provided in this regard, so whether or not CSR contribution will be deductible as a business expenditure is still a debatable question”, Lalit Kumar, Partner, J Sagar Associates, a law firm, said.

Aseem Chawla, Partner, MPC Legal, a law firm, said the lack of clarity on tax treatment of CSR spend is another illustration where two statutes equally applicable to a company do not provide a complete guidance to Corporate India.

There have been so many previous instances where a company has been left in disarray with regard to treatment under two equally applicable statutes.

Dolphy D Souza, Senior Partner, S R Batliboi & Co said that CSR rules do not provide any clarity on tax deduction for CSR expenditure, which essentially has to come from the CBDT.

As per the CSR rules, the qualifying expenditure do not include any spend incurred in the normal course of business.

Under section 37(1) of the Income-tax law, expenditure is deductible only if incurred for the purposes of business.

Therefore there is an inherent conflict in what the rules require the company to spend, and the deduction allowed under the Income-tax law, according to D Souza.

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