Select Your Location
CSR (Corporate Social Responsibility) pertains to a company’s voluntary contribution to a better society and a healthier and cleaner environment in the form of initiatives or programmes. Section 135(5) of Companies Act, 2013 mandates every qualified entity (as defined in section 135(1)) to devote at least 2% of its net earnings over the previous 3 financial years to (CSR) Corporate Social Responsibilities initiatives. Contributions to the NGOs or other recipients, as well as money paid to implementing agencies, may occasionally be included in CSR spending. Nevertheless, the expenditure is frequently related to the procurement of goods or services for one or more CSR initiatives. This purchase of goods or services entails a tax expense, namely GST.
Table of Contents
The Act does not specify whether the amount to be given to CSR activities ought to be tax-inclusive or tax-exempt. Yet, because GST is imposed on the delivery of goods and services, regardless of the aim of social benefit, it appears that the amount given to CSR may be both included and exclusive of GST. With stated so, the issue of the inclusion of the amount of GST paid towards the amount of CSR spending for the purposes of section 135(5) of the Companies Act, 2013 remains.
The following are among the main expenditures addressed under CSR (Corporate Social Responsibility) activities:-
Section 16 clause 1 of the Central Goods and Services Tax Act (‘CGST Act, 2017’) specifies the requirements for claiming Input Tax Credit (ITC). It specifies that:-
CSR initiatives have a significant influence on the company’s image and are also obligatory under the Companies Act of 2013. It improves the company’s reputation and so generates goodwill for the company. Therefore, it is possible to conclude that Corporate Social Responsibility initiatives are undertaken in the course or promotion of business. As a result, ITC may be claimed for these activities.
Section 17(5)(h) of the CGST Act states that “goods lost, destroyed, stolen, written off or disposed off as a gift or free sample” are not eligible for ITC on GST payment. The word “gift” is not defined under the CGST Act. Nevertheless, in layman’s terms, a gift is something given to someone freely and without compensation.
Furthermore, according to Section 37 of the Income Tax Act, any expenditure spent by the assessee for CSR activities cannot be regarded to be for business or profession. As a result, it can’t be considered as a business expense. If this is not a business expense, then ITC cannot be claimed on it.
A corporation makes a financial contribution to a charitable institution, including an NGO, a charitable trust, or a Section 8 company (the “implementing agency”), in order to carry out CSR operations. Nevertheless, in order to perform these duties, these implementing agencies must also employ the services of vendors. These merchants charge GST on the services they provide. Because these implementing agencies frequently do not produce any output, the question arises as to whether these organisations may also claim ITC for the services they provide.
GST includes the concept of a ‘pure agent.’ According to the explanation to Rule 33 of the CGST Rules, 2017, a “Pure Agent” is defined as a person who:-
The implementing organizations meet the qualifying criteria of a “Pure Agent.” Rule 33 also includes other requirements that must be met, including the exclusion of expenditures spent by the vendor as a ‘pure agent’ of the recipient of the provider of goods or services from the value of supply.
In this case, if an implementing agency obtains any goods or services from a seller in order to carry out CSR operations on behalf of a corporation, the payment of any such amount to the vendor is treated as a supply made as a “pure agent” by the implementing agency on behalf of the recipient of supply, i.e., the company. As a result, the implementing agencies’ expenditures are excluded from the value of supply and, as a result, are not subjected to GST payment.
Read our article:All you need to know about Accounts Maintenance under GST
Akansha is a Delhi-based lawyer who is actively involved in publishing articles on a plethora of aspects of Indian and International laws. She holds Master in law (LL.M) focused on Business Laws from Amity University, Noida. Having expertise in the same, she has authored several publications on legal topics related to corporate, M&A and commercial laws.
In the recent past, India has seen burgeoning demand for internet and smartphones. The rapid ri...
The Securities and Exchange Board of India (SEBI), the capital markets regulator, has recommend...
The objective of the enactment of the Prevention of Money-laundering Act, 2002, i.e. PMLA (the...
Tax planning is a continuing effort and a management strategy for ensuring the minimization of...
On 18th May 2023, the Securities Exchange Board of India (SEBI) released a Consultation Paper o...
Infrastructure and real estate have been regarded as India's "sunshine sector" since the turn o...
On 22nd May 2023, the Central Board of Direct Taxes (CBDT) issued a new circular under secti...
Anyone can have different sources of income. With globalization and the opening up of economies...
The Reserve Bank of India (RBI) is crucial in regulating NBFC, including branch openings and cl...
In India, Non-Banking Financial Companies are subject to certain restrictions from taking publi...
Are you human?: 9 + 4 =
Easy Payment Options Available No Spam. No Sharing. 100% Confidentiality
As planned Highlight of 29th GST Council Meeting conducted on 4th of August 2018 in New Delhi. As expected the...
13 Aug, 2018
GST has wrapped multiple taxes into its arm. It is very important to have rules in place to ensure that a registere...
28 Jan, 2019
Red Herring Top 100 Asia enlists outstanding entrepreneurs and promising companies. It selects the award winners from approximately 2000 privately financed companies each year in the Asia. Since 1996, Red Herring has kept tabs on these up-and-comers. Red Herring editors were among the first to recognize that companies such as Google, Facebook, Kakao, Alibaba, Twitter, Rakuten, Salesforce.com, Xiaomi and YouTube would change the way we live and work.
Researchers have found out that organization using new technologies in their accounting and tax have better productivity as compared to those using the traditional methods. Complying with the recent technological trends in the accounting industry, Enterslice was formed to focus on the emerging start up companies and bring innovation in their traditional Chartered Accountants & Legal profession services, disrupt traditional Chartered Accountants practice mechanism & Lawyers.
Stay updated with all the latest legal updates. Just enter your email address and subscribe for free!
Chat on Whatsapp
Hey I'm Suman. Let's Talk!