Firms spending money on corporate social responsibility (CSR), which has been made mandatory under the new Companies Act, have more reasons to cheer. Though CSR provisions do not offer any great tax savings, companies can claim deductions towards depreciation on assets created for CSR purposes and on expenditure for skill development projects.
The Finance Minister has clarified that deductions specifically allowed under Sections 30 to 36 of the Income Tax (IT) Act, 1961 could be availed. In effect, Section 30 of the IT Act can be used for availing deductions against expenditure incurred on repairs and insurance in respect of machinery, plant and furniture used for CSR activities.
Rent, rates, taxes and repairs incurred on buildings or other assets taken on lease earmarked for CSR activity would also qualify for deductions. Companies can also claim deduction towards depreciation on assets used for CSR purposes.
Funds spent on skill development projects gives the assessee the benefit of claiming 150% deduction in their books. In fact, the CSR Rules issued by MCA (Ministry of Corporate Affairs) read with the MCA circular dated June this year clarifies that CSR activities should be undertaken by the companies in project/ programme mode.
"If a company installs water filter in schools at various places, it could claim expenditure on repairs, maintenance, insurance, besides deduction towards depreciation if the asset is shown in its books of account," said K S Ravichandran, partner, KSR&Co., Company Secretaries.
"It is in consonance with government policies. These are enabling provisions to incentivise companies to spend on welfare activities," said G Karthikeyan, a Coimbatore-based Chartered Accountant. According to the Finance Act, 2014, CSR expenditure, being an application of income, is not incurred exclusively for the purposes of carrying on business.