Make CSR spend tax-deductible, recommends panel

Our Bureau New Delhi | Updated on August 13, 2019 Published on August 13, 2019

Panel Chairman Injeti Srinivas submits report to Finance Minister Nirmala Sitharaman

Corporate Social Responsibility (CSR) spend by corporates could become tax deductible if the recommendations of a high-level panel finds favour with the government.

A High Level Committee on CSR under the Chairmanship of Corporate Affairs Secretary Injeti Srinivas has among other things recommended that CSR spends should be eligible for tax deduction under the income tax law. Simply put, the expenses towards CSR should be eligible for deduction in the computation of taxable income. Currently, income tax law does not allow CSR spends as tax deductible amount.

The High Level Committee’s report was submitted to Finance Minister Nirmala Sitharaman by Srinivas here on Tuesday.

It may be recalled that the Centre had recently amended the Company Law to make CSR spend mandatory for companies. It also stipulated that non-compliance could be treated as a criminal offence and attract penalties.

The report also recommended provision for carry forward of unspent balance for a period of 3-5 years, aligning Schedule VII with the Sustainable Development Goals (SDG) by adopting a SDG plus framework (which would additionally include sports promotion, Senior Citizens’ welfare, welfare of differently-abled persons, disaster management and heritage protection), balancing local area preferences with national priorities, introducing impact assessment studies for CSR obligation of ₹5 crore or more, and registration of implementation agencies on MCA portal.

The other recommendations include developing a CSR exchange portal to connect contributors, beneficiaries and agencies, allowing CSR in social benefit bonds, promoting social impact companies, and third party assessment of major CSR projects.

The Committee has emphasised on not treating CSR as a means of resource gap funding for government schemes. It discouraged passive contribution of CSR into different funds included in Schedule VII of the Act.

It has emphasised on CSR spending as a board driven process to provide innovative technology based solutions for social problems. The Committee has also recommended that companies having CSR prescribed amount below ₹50 lakh may be exempted from constituting a CSR Committee. The Committee has also recommended that violation of CSR compliance may be made a civil offence and shifted to the penalty regime.

The High Level Committee on CSR was constituted in October 2018 under the Chairmanship of Corporate Affairs Secretary to review the existing CSR framework and make recommendations on strengthening the CSR ecosystem, including monitoring implementation and evaluation of outcomes.

Experts’ take

Aseem Chawla, Managing Partner, ASC Legal, a law firm, said that Explanation 2 to Section 37 (1) of the income tax law prescribes that CSR expenditure would not be tax deductible.

“It would be worthwhile to consider the allowability of the same for income tax purposes which would also act as an impetus for CSR compliance.

“Instead of regressive actions such as prosecution; which may end up being counter productive, the need of the hour is to ensure compliances through a positive approach,” he said

Published on August 13, 2019
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