The CA Institute has urged Finance Minister, Nirmala Sitharaman, to allow 100 per cent tax deduction of Corporate Social Responsibility (CSR) spends by corporates in the upcoming budget.  

Currently, CSR expenses are not eligible for deduction as a business expense under Section 37 of the Income Tax Act of 1961.

“There is a strong need to revisit this provision, and the companies should be allowed 100 per cent deduction of their CSR expenditure. “In fact, ideally there should be no bar on the allowability of CSR expenditure under the Act,” said the pre-budget memorandum submitted by the Institute of Chartered Accountants of India (ICAI) to the Finance Ministry.

Charitable causes

It highlighted that the CSR expenses are all connected to social and charitable causes and not for any personal benefit or gain. It is, therefore, fair to allow the same as business expenditure, the ICAI has submitted.

It may be recalled that the government had in 2014 amended the law to provide (in Section 37) that any expenditure incurred by an assessee on activities relating to CSR should not be deemed to be an expense incurred by the assessee for the purpose of business or profession and deduction would not be allowed. 

As per the Companies Act 2013, it is mandatory for certain specified companies to spend 2 per cent of their average profits to CSR. The CSR expenses incurred by companies are now specifically treated as for non business purposes and hence are disallowed for income tax purposes.

COVID19 IMPACT

In 2021–22, the top 300 large companies collectively spent about ₹12,270 crore. Owing to the  Covid-19 pandemic effect. India Inc’s corporate social responsibility (CSR) spend for FY 2020-21 had fallen sharply to ₹8,828.11 crore, much lower than the cumulative spends of ₹20,150.27 crore in FY2018-19 and ₹24,688.66 crore in FY20, official data showed.

In India, the CSR architecture is disclosure-based, and only CSR-mandated companies are required to file compliance with MCA 21. 

Under the Companies Act, CSR is a board-driven process, and the board of the company is empowered to plan, decide, execute, and monitor CSR activities based on the recommendations of the CSR committee. The government does not issue any specific direction to the companies to spend in any particular activity or area.

About ₹10,000 crore is available with listed companies annually for spending on CSR activities. If the eligible unlisted companies are taken into account , the available sum may be larger. 

CSR in India has traditionally been seen as a philanthropic activity. However, with the introduction of Section 135 of the Companies Act, India became the first country to have a statutorily mandated CSR for specified companies. The Act requires companies with a net worth of ₹ 500 crore of more, or turnover of ₹1,000 crore or more , or a net profit of ₹ 5 crore or more during the immediately preceding three years on CSR activities. 

It enumerates the activities that can be undertaken and the manner in which the companies can be undertaken, as and the manner in which the companies can undertake CSR projects and programmes. 

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