Corporate Social Responsibility
CA Sameer Gogia
CSR under the Companies Act 2013
Applicable on?
Criteria?
How much?
• All companies
including a holding or
subsidiary company in
India
• Net worth of INR 5
billion or more
• At least 2% of the
average net profit of
the company in the
immediately three
preceding financial
years
• Branch or project
offices of foreign
companies
• Turnover of INR 10
billion or more
• Net profit of INR 50
million or more
2
CSR expenditure
Company shall
spend, In every FY
at least 2% of the
average net profit
made during the 3
immediately
preceding FY
•
Preference shall be given to local area around it where
it operates
•
Includes contribution to corpus, or expenditure on
projects related to CSR activities approved by BOD
•
Does not include any expenditure on an item, not in
line with activities covered under Schedule VII
•
Companies may build CSR capacities of their own
personnel as well as of outside implementing agencies
through institutions with track record of three FY, but
such expenditure shall not exceed 5% of the total CSR
expenditure of the Company in one FY
3
CSR activities
Promotion of gender
equality/empowering
women
Contribution to Swatch
Bharat Kosh
Measures for benefit of
armed forces veterans, war
widows and dependents
Promotion of education
including employment
enhancing vocational skills
Funds provided to
technology incubators with
academic institutions
Eradicating hunger,
poverty and malnutrition
Protecting national
heritage, art and culture
CSR
Contribution to PM
National Relief Fund/ any
specified fund
Ensuring environmental
sustainability
Training to promote sports
Contribution to Clean
Ganga Kosh
Rural development / slum
development projects
4
CSR Compliance
Responsibilities of Board
Constitution of CSR Committee of the Board
(3 or more directors, having atv least 1 independent
director*)
CSR Committee Shall
Formulate and
recommend
CSR policy
(preference to
be given to local
area)
Recommend CSR
activities and
expenditure on
the same
Monitor CSR policy
from time to time
•
Disclose composition of
CSR Committee
•
Approve CSR policy and
report
•
Ensure CSR activities
are undertaken by
company
•
Ensure spending on
CSR activities and
reporting of noncompliance
Board has to disclose in Director Report. Failure to report would attract penalty
on the company of maximum INR 25 lakhs and probable imprisonment of officer
which may extend to 3 years
* Requirement of independent director relaxed in final CSR rules for unlisted companies and private companies
5
Chronological events
I Date
Reference
10 July 2014
Union Budget 2014.
Income tax Act ,1961
amended to include an
explanation to section 37
(1)
Explanation to section 37 (1) “for the purposes of subsection (1) of section 37 any expenditure incurred by
an assessee on the activities relating to corporate
social responsibility referred to in section 135 of the
Companies Act, 2013 shall not be deemed to have
been incurred for the purpose of business and hence
shall not be allowed as deduction under said section
37
18 June 2014
CBDT Issues Circular No.
21/2014
Stress for liberal interpretation and Research and
Studies in the areas specified in Schedule VII for
example research in health care, education, etc. shall
qualify as CSR expenditure under Schedule VII of the
Companies Ac
24 October
2014
Notification No.
[F.NO.1/18/2013-CL-V]
issued by Ministry of
Corporate Affairs
Central Government notifies Swach Bharat Kosh and
Clean Ganga Fund under CSR
6
Chronological events
Date
Reference
21 January
2015
Circular No.1/2015
[F.No.142/13/2014-tpl],
Explanation to section 37 (1) “for the purposes of subsection (1) of section 37 any expenditure incurred by
an assessee on the activities relating to corporate
social responsibility referred to in section 135 of the
Companies Act, 2013 shall not be deemed to have
been incurred for the purpose of business and hence
shall not be allowed as deduction under said section
37”.
Clarity on : that the CSR expenditure which is of the
nature described in section 30 to section 36 of the
Income-tax Act shall be allowed as deduction under
those sections subject to fulfillment of conditions, if
any, specified therein, applicable 1 April 2015.
Union Budget
2015
To be enacted
It is proposed to amend the section 135 of the
companies Act to include contribution towards swatch
Bharat kosh and clean Ganga kosh as allowable CSR
activity
7
Clarity on Swatch Bharat and Clean Ganga
Section 80G
•
Donations made to Swachh
Bharat Kosh and Clean Ganga
Fund will be eligible for 100%
deduction from total income.
Section 10(23C)
‒ Effective from FY 2014-15
‒Effective from FY 2014-15
• Income of Swachh Bharat Kosh
and Clean Ganga Fund will be
exempt under section 10(23C)
‒ Other than CSR expenditure
8
8
Mapping of CSR activities
Schedule VII of Companies Act
Section under IT Act
Eradicating hunger, poverty and
malnutrition
Promotion of education including
employment enhancing vocational skills
Promotion of gender equality/empowering
women
Ensuring environmental sustainability
Protecting national heritage, art and culture
Measures for benefit of armed forces
veterans, war widows and dependents
35AC
35CCD /
35CCC
35AC
35CCC
35 AC read with rule 11K [ 80G (2)(b)]
Section 80G(2)(a)(i) and 80G(2)(a)(iii)(h)(c )
*35CCA includes payment of any sum to a notified rural development fund or the National Urban Poverty Eradication fund
9
Mapping of CSR activities
Schedule VII of Companies Act
Section under IT Act
Activities concerning Sports- Training to promote
rural sports,nationally recognized sports,
Paralympics sports and Olympic sports
Contribution to PM National Relief Fund/ any
specified fund
Funds provided to technology incubators with
academic institutions
Rural development / slum development projects
35AC read with Rule 11K
80G
35(2AA) and section 80G (2)
35CCA* / 35AC/ 35CCC/ 35CCD
10
Income tax benefits
Entity to be registered under section 35(1)(ii)
•
Entity engaged, among others, in scientific research activities, is
registered under section 80G of the ITA and carrying out
specified CSR activities
•
Entity to be registered under section 35(1)(ii)
•
Quantum of deduction should encourage more contribution by
corporates
•
Payment by corporate taxpayer to such entity should qualify for
activities specified in Schedule VII to Companies Act, 2013
(Refer Annexure 1)
•
CSR scheme
Corporate taxpayer
Contribution /
donation
Deduction of 175% of donation from the taxable income:
Particulars
Amount
Amount
Donation made
100
100.00
Deduction from total income
50
175.00
16.995
59.482
Tax benefit (~33.99% of
50/175.00 respectively)
Entity registered under
section 35(1)(ii)
Additional deduction of 125%
11
CSR Activities
as per
companies Act
CSR
activity as
per section
135
Activities
mentioned
under section
30-36 of the Act
or under 80G
As per
section 3036 of the
Act or 80G
certificate
Eligible for
tax
deduction
Tax issues
13
Tax issues
14
Tax issues
15
Tax issues
16
Tax issues on CSR
• Statutory/ compulsory contribution would not qualify as CSR
• Carryforward of the surplus expenses
• Contributions in kind such as donation of books, land , sports items,
computers for education etc. whether monitory value would qualify for the CSR
activity
• Applicability of the transfer pricing provisions to CSR activities
17
CSR Expenditure on the basis of Judicial
Precedent
Funds provided for establishing drinking
water facilities and providing aid to school
meant for residents of the locality in which
the taxpayer operated
CIT v. Madras Refinery Ltd. [266 ITR
170](Mad)
Expenditure on community assistance
programmes and welfare measures
undertaken in the vicinity of taxpayer’s
manufacturing unit
CIT v. Madura Coats Ltd. [24 DTR 24](Mad)
Installation of traffic lights in the vicinity of
taxpayer’s office to improve traffic situation,
serving dual purpose of benefitting the
employees as also social commitment 3.
Trips to Bhuj and Jamnagar post
earthquake for relief work
Infosys Technologies v. JCIT [109 TTJ
631](Bang)
18
CSR Expenditure on the basis of Judicial
Precedent
Trips to Bhuj and Jamnagar post
earthquake for relief work
Jindal Steel and Power Ltd. [16 SOT
509](Delhi)
Construction of hockey stadium for use of
local residents 5.
ITO v. VeluManickam Lodge (123 ITD
25)(Chennai)
Sponsorship of sports tournaments bearing
the sponsor’s name on banners and
association with the trophy
CIT v. Lake Palace Hotels & Motels (P) Ltd.
[293 ITR 281](Raj)
Contributions made by Pharma company to
health care society and science foundation
allowed as it would bring Goodwill to the
assessee
ACIT v. Ranbaxy Labs Ltd. (7 ITR (Trib)
161](Delhi) CSR – Opportunities
19
Thank You