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Companies are unlikely to see any relaxation in the budget provision related with no ITC (Input Tax Credit) for CSR (Corporate Social Responsibility) expenses. However, they will not be asked to deposit ITC, availed any time since implementation of GST till date.
The Finance Bill 2023 proposes to amend section 17 of CGST Act “to provide that input tax credit shall not be available in respect of goods or services or both received by a taxable person which are used or intended to be used for activities relating to his obligations under corporate social responsibility referred to in section 135 of the Companies Act, 2013.”
“CSR expenditure is not for furtherance of business, but to give back to the society. Companies also do not spend CSR money on activities related with their businesses. At the same time, there have been contradictory rulings by AAR (Authority for Advance Rulings) on this issue,” a senior Finance Ministry official told businessline while clarifying the logic for the provision. Further, he said under Income Tax Act, no deduction is allowed for CSR expenses, so “why special treatment under GST?”
No date of implementation
“We intend to bring out a detailed clarificatory circular post enactment of Finance Bill 2023. There will be nothing like the date of implementation, but one thing is sure that we will not go behind the companies to deposit the ITC, if availed till date on account of CSR expenditure,” he said.
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According to section 135 of Companies Act 2013 every company having net worth of ₹500 crore or more, or turnover of ₹1,000 crore or more, or a net profit of ₹5 crore or more during any financial year will be required to spend in every financial year, at least 2 per cent of the average net profits made during the three immediately preceding financial years, in pursuance of its corporate social responsibility policy.
Seeking clarity
Suggestions have been made to the Finance Ministry that the ITC should be given for any amount paid over and above 2 per cent provision. Also, question has been asked that will this provision be applicable only for those companies fulfilling conditions of Section 135 or others too. The official said it will be difficult to segregate expenditure between 2 per cent and more than 2 per cent. Also, “provision will be applicable to all companies spending on CSR,” he said.
ITC on CSR became the headline especially after various companies approached AARs to get clarity only to get contradictory rulings. Telangana AAR favoured ITC on CSR related purchases of PSA oxygen plant and spare parts by Hyderabad based Bambino Pasta Food Industries.
Similarly, in the case of Dwarikesh Sugar Industries , the Uttar Pradesh AAR ruled in favour. However, Kerala AAR, in the matter of Polycab Wires held that ITC shall not be available on free distribution of electrical items like switches, fans, cables, etc., to flood affected people under CSR.
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