Certain CSR works eligible for tax benefits, says government

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The government today said certain social welfare spending activities by corporates would be eligible for tax benefits but maintained that all CSR works cannot be given the same treatment.

Under the new Companies Act, certain class of profitable entities are required to shell out at least two per cent of their three-year average annual net profit towards Corporate Social Responsibility (CSR) activities.

The government has provided clarity on tax aspects of CSR in the Union Budget, which was presented by Finance Minister Arun Jaitley today.

"As the application of income is not allowed as deduction for the purposes of computing taxable income of a company, amount spent on CSR cannot be allowed as deduction for computing taxable income of the company," the government said.

However, the government said that deductions could be allowed for certain CSR activities.

"... The CSR expenditure which is of the nature described in section 30 to section 36 of the Act shall be allowed deduction under those sections subject to fulfillment of conditions, if any, specified therein," the Union Budget 2014-15 said.

An amendment in this regard would be effective from April 1, 2015.

Emphasising that the objective of CSR is to share the government's burden in providing social services, the Union Budget said, "if such expenses are allowed as tax deduction, this would result in subsidising of around one-third of such expenses by the government by way of tax expenditure".

As the CSR expenditure -- being an application of income -- is not incurred for the purposes of carrying on business, such expenditures cannot be allowed under the existing provisions of section 37 of the Income Tax Act, the government said.

Under this section, deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on business or profession.

Vikas Vasal, Partner at KPMG in India, said only few projects as provided for in section 30 to 36 of the Income Tax Act would be eligible for tax benefits. "It will be a disappointment for the industry," he added.

CSR norms are applicable for companies having minimum net worth of Rs 500 crore or turnover of Rs 1,000 crore or net profit of Rs 5 crore in a financial year.

Meanwhile, the government has included slum development under CSR ambit.

In his Budget speech, Jaitley said that "slum development" would be included in the list of CSR activities to encourage the private sector to contribute more towards this activity.

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