CSR profit calculation as per Section 198

Hi Khushi!

Regarding ESOP expenses and Section 198 (Net Profit calculation for CSR):

Key points:

• Section 198 deals with computation of net profit for companies other than banking companies.

• It requires adjustment of profits as per Schedule III to the Companies Act, which aligns with Indian Accounting Standards (Ind AS) or Indian GAAP.

• ESOP (Employee Stock Option Plan) expenses are generally recognized as employee benefit expenses in the Profit & Loss Account as per accounting standards (Ind AS 102).

• These expenses are deducted in the P&L, so they reduce profit before tax.

For CSR calculation under Section 198:

• There is no specific provision in Section 198 or CSR Rules that mandates disallowance of ESOP expenses.

• Hence, ESOP expenses are allowed as a deduction while computing net profit under Section 198.

• Meaning, ESOP expenses will reduce net profit and thus reduce CSR liability.

Summary: