XYZ Corporation is a leading conglomerate with an average CSR obligation of ₹ 12 Cr. over the past three financial years. It has recently decided to get carried out a comprehensive Social Impact Assessment (SIA) for its

CS Professional · CSR and Social Governance · PYQS · December 2024
XYZ Corporation is a leading conglomerate with an average CSR obligation of ₹ 12 Cr. over the past three financial years. It has recently decided to get carried out a comprehensive Social Impact Assessment (SIA) for its recent CSR project in a rural community which aimed to provide clean drinking water by installing community water filtration systems. The SIA, conducted by an independent agency, assessed both positive and negative impacts of this project on stakeholders. Positive impacts as observed by the agency included improved health due to access to clean water, economic benefits from reduced healthcare costs, and increased school attendance for children with improved health. However, negative impacts such as initial disruption during construction and potential changes in local water usage practices were also identified. Ongoing monitoring and evaluation revealed that the project had significantly improved water quality, leading to a 30% decrease in waterborne diseases in the community within the first year of implementation. Study the above case and answer the following questions: How does the Income Tax Act, 1961, allow CSR spenders to claim certain expenses ? Also, indicate as a prominent entity, how does businesses ensure that its CSR initiatives complement the government's GST policies, fostering an ecosystem of social responsibility while adhering to tax compliance requirements ?

Answer & Explanation:

Explanation 2 to Section 37(1) of the Income Tax Act, clearly states that the expenditure incurred by companies on CSR as laid down in Section 135 of the Companies Act shall not be deemed to be expenditure incurred for the purposes of business or profession and hence not to be allowed as expenditure. However, the Memorandum to the Finance Bill states that expenditure falling under Sections 30 to 36 would be allowed as deductions subject to fulfilment of conditions specified. Section 30: Deduction on repairs, municipal tax, and insurance for premises Section 31: This section provides deduction on repairs and insurance of plant, machinery, and furniture Section 32: Under this section, CSR spenders can get depreciation on tangible assets like building, machinery, plant, furniture and also on intangible assets like know-how, patents, trademarks, licenses. Section 35: Under this section, deduction is given on expenditure for scientific research and knowledge extension in natural and applied sciences under agriculture, animal husbandry and fisheries. Payment to approved universities/research institutions or company also qualifies for deduction. In-house R & D too is eligible for deduction, under this section. Section 35CCD: Deduction for skill development projects Section 36: Here, deduction is provided regarding insurance premium on stock, health of employees, loans or commission for employees, interest on borrowed capital, employer contribution to provident fund, gratuity and payment of security transaction tax Section 16(1) of the CGST Act provides that a registered person is eligible to avail the input tax credit of goods or services supplied to it and used by it in the course or furtherance of business. Further, according to Section 17(5) of the CGST Act, input tax credit is not available in respect of supplies listed therein, notwithstanding anything contained in Section 16(1) of the CGST Act.

Topics: CSR and Taxation

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