Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: TDS :: ACCOUNTING STANDARDS :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: Central Excise rule to resale the machines to a new company :: VAT RATES :: articles on VAT and GST in India :: list of goods taxed at 4% :: cpt :: ACCOUNTING STANDARD :: form 3cd :: VAT Audit :: ARTICLES ON INPUT TAX CREDIT IN VAT :: TAX RATES - GOODS TAXABLE @ 4% :: empanelment :: due date for vat payment
 
 
General »
  Withdrawal of Legal Tender Character of the existing Bank Notes in the denominations of ₹ 500/- and ₹ 1000/- (Updated as on November 30, 2016)
 Cases for tax scrutiny will be selected by machines
 Time to revisit 1997 direct tax rates, says P Chidambaram
 Lok Sabha passes Bill to tax black money deposits post demonetisation
 Last day to pay property tax with old notes
 Income tax department asks IDS declarants to pay tax by 30 November
 Why PM Narendra Modi must beware of the breathtaking Arthakranti tax
 Japanese firms seek easing of restrictions on funding in India
 Tax on black money: How the cookie will crumble
 Income tax officials say raids on jewellers based on 'credible intelligence' proving fruitful
 Exchange window being misused, government forced to reduce limit to Rs 2000, says Arun Jaitley

CSR spends to get cos varying tax benefits
August, 13th 2013

The tax benefit against corporate social responsibility (CSR) spending, introduced by the Companies Bill, 2012, which was recently passed by the Rajya Sabha, would vary widely depending on the nature of such expenditure. At present, both tax and CSR consultants are putting their heads together to chalk out a CSR strategy for India Inc, which would also provide the best tax efficiency.

For instance, writing a cheque towards the PM's National Relief Fund (PMNRF) would entitle the donor company to a deduction, from taxable profits, of the entire donation amount. On the other hand, if a company has constructed a school building in a village, no tax benefit may be available — at least not without a drawn out litigation. While both the donation towards the PMNRF and promotion of education are activities that qualify as CSR spends under the companies bill, the tax benefits could vastly differ. The bill calls for companies having a net worth of Rs 500 crore or more, or a turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more to have a CSR spend of at least 2% of their average net profits of the past three years. The bill stops short of making CSR spend mandatory, as it states the board of directors "shall ensure" that the company spends towards CSR.

Schedule VII of the bill prescribes wide-ranging activities that could be part of a company's CSR policy, such as eradicating hunger and poverty, promotion of education, women empowerment, reducing child mortality and improving maternal health, environmental sustainability, employment enhancing vocational skills or contributions to central or state government set-up funds, including the PMNRF.

The bill does not prescribe the proportion of funds to be contributed towards any activity. As things stand, a company could meet its CSR obligation entirely via donation.

However, there is a devil in the fine print. "A company is required to give preference to the local area and areas around it where it operates for CSR spend. Perhaps the rules, which will follow, may specify what percentage should be spent on CSR activities in local areas and what percentage can be donated," says a director of a large business group.

Under section 37 of the Income Tax (I-T) Act, 1961, an expenditure which is not capital expenditure and is expended "wholly and exclusively" for the purpose of a business is allowed as a deduction from business profits (known as business deduction). To illustrate in the CSR spend context, the moot question for India Inc is whether constructing and running a school can be regarded as an expenditure incurred wholly and exclusively for the purpose of business? "If clarifications are not issued, claiming CSR spends as a business deduction may result in endless litigation," says a company director.

Sudhir Kapadia, partner and tax head, EY, says, "It can be argued that since the companies are now covered by a legislation that calls for CSR spending, any CSR-designated revenue expenditure should be regarded as having a nexus with the business and should be allowed as business deduction. For capital expenditure, such as school furniture or building, depreciation should be available. However, a clarification would be welcome."

Tax laws also prescribe a deduction for various donations from taxable income, but in most cases such a tax deduction could be much less than if the same were allowed as a business deduction. Under section 80-G of the I-T act, the amount of donation is deductible from taxable income, either in full or to the extent of 50%. The aggregate maximum amount, allowed as a deduction, is subject to a ceiling of 10% of the gross total income of the donor. For certain funds, this ceiling doesn't apply.

According to tax experts, even in case of donations made to external agencies or a foundation set up by the company, it can be argued that it is a bonafide business expenditure which should be allowed fully as a deduction under section 37 of the I-T act. "The Supreme Court, in case of a donation made by a company to a public welfare fund, had held that the donation was directly connected or related to the company's business. It resulted in a benefit to the carrying on of the business and was allowed as a business deduction. The same tenet should apply to donations under the company's CSR policy," says Punit Shah, co-head (tax) at KPMG.

There are also a few sections in the I-T act that provide for deduction from business profits in respect of contributions made towards notified projects. For instance, Section 35CCD provides a weighted deduction of 150% of the expenditure towards a notified skill development project. "However, only a few projects, if any, get notified," say CSR consultants.

More than 2,500 companies, including the top 100 companies across sectors, will be covered by these CSR provisions, according to EY. The CSR spend of BSE500 companies could run up to over Rs 5,000 crore according to the most conservative estimates, say analysts. Even central public sector enterprises, which were subject to CSR norms under separate guidelines, will, on enactment of the bill, come within the purview of these new provisions.

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Our Team

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions