Quick Summary
The simple meaning of CSR is charity. The companies undertake CSR activities either by way of donating money to charitable organisation, or by providing goods or services free of cost. Upto March 2014, the companies were undertaking CSR activities as per their internal polices. However, from 1 Ap
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FAQ :
No, Explanation 2 to Section 37(1) of the Income Tax Act, 1961, states that CSR expenditure incurred under Section 135 of the Companies Act is not allowed as a deduction.
Under the earlier CENVAT Credit Rules, there were conflicting rulings. Some tribunals allowed ITC on input services for CSR activities, viewing them as related to business, while others disallowed it.
The GST provisions do not specifically allow or disallow input tax credit on CSR expenses, and there is no explanation similar to the Income Tax Act. However, the department often relies on clause (h) of Section 17(5) to disallow credit on gifts.
The Finance Bill 2023 introduced clause (fa) in Section 17(5) of the CGST Act, explicitly stating that input tax credit shall not be available for goods or services used for activities relating to corporate social responsibility obligations under Section 135 of the Companies Act, 2013.
The amendment will come into effect from a date to be notified by the government.
Potential issues include when companies can claim credit for procurements made before the new provision is notified, the exact scope of 'activities relating to CSR obligations', the meaning of 'intended to be used', and whether credit is allowed if CSR expenditure exceeds the mandatory threshold or is incurred by partnership firms.
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