Companies could get tax benefit for some CSR activities

Money spent on all corporate social responsibility (CSR) works cannot be counted as business expenditure but certain social welfare spending activities could be considered for tax benefits, according to Central Board of Direct Taxes (CBDT) Chairman RK Tiwari.

Under the new Companies Act, certain class of profitable entities are required to shell out, at least, 2 per cent of their three-year average annual net profit towards CSR activities.

The government has provided clarity on tax aspects of CSR in the Union Budget.

Clarifying the government's stance on the issue of possible tax benefits for CSR activities, Tiwari said that under certain Income Tax Act provisions, deductions are allowed for some activities.

"... but there are certain other Income Tax provisions where deduction is allowed like for farming, for education ... they also come under CSR. So, our view is that there are many activities which are akin to CSR but they are not to be allowed as business expenditure...," Tiwari told PTI.

In the Budget, the government said that 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. However, 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 fulfilment of conditions, if any, specified therein," the Budget stated.

Emphasising that the objective of CSR is to share the government's burden, the Budget said that 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.