India Inc, which now has to spend on corporate social responsibility (CSR) activities, may have to bear a heavier tax burden, unless the expenditure is covered by specific provisions of the Income Tax (I-T) Act.
The Finance Bill has clarified that such spend will not be treated as business expenditure. If it were treated as business expenditure, it would have directly reduced the taxable profits of the concerned company.
However, tax benefits could be available for certain CSR activities under other sections of the I-T Act. "If the CSR expenditure is covered by the specific sections (Section 30 to 36) of the I-T Act, repairs, depreciation, expenditure on a wide variety of notified projects including skill development projects, would be allowed under those sections. Accordingly, if the company constructs a vocational training centre as a CSR project, then repairs, depreciation (at 10%) insurance, or interest on borrowings taken to construct such building will now be expressly allowed as deduction," says Punit Shah, co-head of tax, KPMG.
India Inc will, however, face challenges as projects do not get notified on a timely basis. Some notified projects would provide a higher tax benefit.
India Inc may also find that making a donation is a hassle-free eligible activity.