Tax credits can go towards charitable spending by businesses

This would mean that taxes on the portion of goods and services used in CSR activities cannot be adjusted against a company’s overall GST liability, according to two persons aware of the discussions in the central government. “This will be a major change in the GST law,” said one person. The plan is to amend the GST Act (16 and 17) dealing with Input Tax Credit or ITC.

One of the bases of GST is the availability of credit to a business for taxes paid on purchases so that the tax is applicable only on value addition at each stage of the supply chain and there is no tax on the tax. However, credit for GST paid during purchase of goods and services for meeting CSR obligations has been an ambiguous area, with various advance ruling authorities giving contradictory orders. This warrants clearing the air through legislative amendments, said the first person cited above. It is through the annual Finance Bill that changes in various tax laws such as the Income Tax Act, Customs Act, CGST Act and IGST Act are implemented.

Advance ruling authorities in Uttar Pradesh, Telangana, Gujarat and Kerala have examined the issue of whether tax paid as part of CSR activities “in the course or furtherance of his business” – paid on purchase Criteria for making credits available for taxes paid — and have given diametrically opposite views. While the Telangana State Authority for Advance Rulings and the Authority for Advance Rulings in Uttar Pradesh held that GST on inputs purchased for CSR is available as credit, the authorities in Gujarat and Kerala ordered otherwise on this specific question, showing orders that are not in the public domain. Available in domain.

The Telangana State Authority for Advance Ruling, in its order dated October 20, 2022, said that CSR expenditure as mandated under the Companies Act is expenditure incurred in furtherance of business. “Hence the tax paid on purchases made to meet obligations under Corporate Social Responsibility shall be eligible for input tax credit under the Central GST and State GST Acts,” the order said. Voluntary, but is a statutory liability under the Companies Act and hence tax credit is not barred on it. However, the Gujarat Authority for Advance Ruling, in its August 2021 order, pointed out that CSR activities are excluded from the ordinary course of business and hence not eligible for input. tax credit.

The move in the CGST Act to specify that input tax credit will not be available to businesses on CSR is relevant for large companies such as Reliance Industries, TCS, Tata Sons, HDFC Bank Ltd and ONGC, which according to official data are the highest CSR spenders. Huh. In FY21, Reliance Industries spent 922 cr on CSR, followed by TCS 674 crores and with Tata Sons 546 crore, while HDFC Bank Ltd spent 534 crores and ONGC Ltd. spent 531 crores. India ink. spent more than 25,700 crore on CSR in FY21.

Spending on Corporate Social Responsibility by the industry has seen a boom in recent years 14,300 cr spent in FY17. In January 2021, the government brought into effect a penalty provision for defaulting on the CSR spending obligation and allowed businesses to spend in excess of their obligation which can be adjusted against their future spending requirement.

net worth companies 500 crores or more, or a turnover of 1,000 crore or more, or a net profit of Five crore or more, need to spend 2% of their average net profit of the last three years on CSR activities. Companies have to spend the amount so calculated on CSR irrespective of whether they get tax credit or not. The advantage of availing input tax credit is that it can be used to pay at least a part of the GST liability on the sale of the company.

Emailed queries to the Finance Ministry and GST Council Secretariat on Friday seeking comment for this story remained unanswered at the time of publication.