<div>Under the Companies Act, 2013, corporates having net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more during any financial year are required to spend certain percentage of their profit on activities relating to Corporate Social Responsibility (CSR).<br /> <br />There has been confusion regarding whether such payments would be allowed as deduction in the computation of income. The industry was expecting certainty on this aspect through the insertion of a specific provision allowing the deduction of CSR expenditure. The Finance Ministry has now cleared the confusion by providing that no deduction of such CSR expenditure would be allowed under section 37 of income tax act (Act). The rationale for this disallowance is that <br /><br />the objective of CSR is to share burden of the Government in providing social services by companies having net worth/turnover/profit above a threshold. If such expenses were to be allowed as tax deduction for these corporates, this would result in subsidizing of around one-third of such expenses by the Government by way of tax expenditure.<br /> <br />However, it has also been provided that CSR expenditure which is in the nature of expenses covered under section 30 to 36 of the Act (sections specifying types of expenditures which qualify for deduction while computing taxable income) would not attract any disallowance under this provision. Therefore, Industry may now have to strategize their CSR expenditure so as to see whether it may fall under the (allowable) provisions of section 30 to 36 of the Act and hence the CSR expenditure may still qualify for deduction. Some of expenditures which might also qualify for deduction as CSR expenditure may inter-alia include expenditure on Skill Development, Rural Development, Promotion of Social and Economic Welfare, etc. This strategy provide an additional advantage as many of aforesaid expenditures includes the benefit of weighted deductions.<br /> <br /><br /><strong>Sujit Parakh, Director, Tax and Regulatory Services, R&D and Government Incentives </strong></div>
