ICAI bats for India Inc, pitches for 100% tax deduction for CSR expenses

The CA Institute has urged the Finance Minister, Nirmala Sitharaman, to allow 100 per cent tax deduction on corporate social responsibility (CSR) expenditures by companies in the upcoming budget.

Currently, CSR expenses do not qualify for deduction as a business expense under Section 37 of the Income Tax Act of 1961.

There is a strong need to reconsider this provision and companies should be allowed to deduct 100% of their CSR expenses. “Indeed, ideally, there should be no impediment to allowing CSR expenditures by law,” said a pre-budget note submitted by the Institute of Chartered Accountants of India (ICAI) to the Finance Ministry.

For charitable reasons

She highlighted that CSR expenditures are all linked to social and charitable causes and not for any personal benefit or gain. Therefore, it is fair to allow the same business expenses as provided by ICAI.

It should be noted that in 2014 the government amended the law to stipulate (in section 37) that any expenditure incurred by a resident on CSR related activities should not be considered an expense incurred by a resident for the purpose of business or profession and the deduction is not permitted.

According to the Companies Act 2013, certain companies are required to spend 2 percent of their average profits on CSR. CSR expenses incurred by companies are now specifically treated as non-business purposes and are therefore not allowed for income tax purposes.

COVID19 impact

From 2021 to 2222, the top 300 large companies collectively spent around Rs 12,270 crore. Because of The impact of the COVID-19 pandemic. Official data showed that India Inc’s corporate social responsibility (CSR) spending for the 2020-21 financial year fell sharply to ₹8,828.11 crore, much lower than the cumulative spending of ₹20,150.27 crore in the 2018-2019 financial year and ₹ 24,688.66 crore in the financial year 2020.

In India, the CSR structure is disclosure based and only CSR mandated companies are required to submit MCA 21 compliance.

Under the Companies Act, CSR is a board-led process, and the company’s board of directors has the power to plan, decide, implement, and monitor CSR activities based on the recommendations of the CSR committee. The government does not issue any specific directive for companies to spend in any particular activity or field.

Around Rs 10,000 crore is available with listed companies annually to be spent on CSR activities. If eligible unlisted companies are taken into account, the amount available may be greater.

CSR in India has traditionally been viewed as a philanthropic activity. However, with the introduction of Section 135 of the Companies Act, India became the first country to have legally compulsory social responsibility for specific companies. The law requires companies with a net worth of Rs 500 crore or more, sales of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more within the three years immediately preceding CSR activities.

It enumerates the activities that can be carried out and the way companies can practice them, and the way companies can implement corporate social responsibility projects and programs.