Availment of GST on Corporate Social Responsibility(CSR)

Last Updated On: Aug. 18, 2021, 8:27 p.m.
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AVAILMENT OF GST ON CORPORATE SOCIAL RESPONSIBILTY

 

Every company, under Section 135(5) of the Companies Act, is required to comply with the CSR requirements.

The specified companies are as follows:

Every company with any one of the following during the immediately preceding financial year is required to meet Corporate Social Responsibility requirements under the Act:

  • A net worth of Rs 500 crore or more
  • A turnover of Rs 1,000 crore or more
  • A net profit of Rs 5 crore or more

In every financial year, a company is required to spend at least 2% of the average net profits made during the immediately preceding three fiscal years by following its Corporate Social Responsibility Policy. Some of the significant expenditure covered under Corporate Social Responsibility activities are:

  • Providing education
  • Promoting gender equality
  • Projects related to rural development
  • Contribution to PM Cares Fund
  • Contribution towards the protection of the environment
  • Promotion of healthcare, preventive healthcare and sanitation activities related to COVID-19
  • Events related to disaster management including relief activities

 

Availability of ITC on CSR activities

No ITC available on CSR activities

For understanding the availability of ITC on CSR activities, let us first understand some of the crucial definitions under GST.

1) Supply: Supply is a taxable event under GST. The liability to pay tax under GST arises at the time of the supply of goods or services. Supply includes:

  • Sale
  • Transfer
  • Exchange
  • Barter
  • License
  • Rental

 

Any person who engages himself in any of the above activities is covered under the definition of supply under GST. Further taxable supply means a supply of goods or services or both which are subject to tax under the GST Act.

2) Goods: Goods means all kinds of movable property. It includes actionable claim, growing crops, grass and, things attached to or forming part of the land. However, it does not include money and securities.

3) Services: Services include any activity other than goods, money and securities. It consists of all the activities related to the use of money or conversion of money from one form to another. Separate consideration is charged for this.

4) Business: Business means any activity carried out by a person including trade, commerce, manufacture, profession, vocation, adventure or wager whether or not it is carried out for a monetary benefit.

On looking into the input tax credit provisions, Section 17(2) of the CGST Act has a point. The taxes paid on inputs can be claimed as ITC only if the outputs are taxable supplies. Also, as per section 17(5)– Block Credit, ITC is not available for goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.

In the case of Corporate Social Responsibility activities, a company is providing outputs/output services free of cost. Thus, by taking into consideration the definition of taxable supplies and provisions of section 17(2), input credit cannot be availed on CSR activities.

Further, even as per Section 37 of the Income Tax Act, any expenditure incurred by the assessee with regards to CSR activities cannot be deemed by the assessee for business or profession. Thus, it cannot be claimed as business expenditure. If this is not a business expenditure, then ITC cannot be claimed on such spending.

 

 ITC is available on CSR activities

ITC is available on CSR activities because they are incurred in the course or furtherance of business. CSR activities have a high impact on the image of the company and are also mandatory as per the provisions of the Companies Act, 2013. It enhances the reputation of the company and thus creates the goodwill of the company. Therefore, it can be ascertained that Corporate Social Responsibility activities are incurred in the course or furtherance of business. So, ITC can be claimed for such events.

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