Regarding the CSR (Corporate Social Responsibility) expenses, there is zero anticipation among the companies to see any relaxation in the budget provision concerned with the no ITC (input tax credit).
The 2023 finance bill aims to revise section 17 of the CGST Act by stating that input tax credit will not be accessible for goods or services or both received by a taxable person that are utilized or intended to be used for fulfilling their obligations under corporate social responsibility outlined in section 135 of the Companies Act, 2013.
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“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 to their businesses. At the same time, there have been contradictory rulings by AAR (Authority for Advance Rulings) on this issue,” tax experts articulated. Regarding the expenses for CSR, he articulated under the income tax act that no deduction would get permitted, thus “under GST why the special treatment?”
No Execution Date
He mentioned, After the implementation of Finance Bill 2023, we plan to release a comprehensive clarifying circular. The exact implementation date has not been determined, however, we can guarantee that we will not pursue companies to repay Input Tax Credit claimed for CSR expenditures made to date.
Every company that secures a net worth of Rs 500 cr or exceeding that or a turnover of Rs 1000 cr or exceeds or a net profit of Rs 5 cr or exceeding that in any fiscal year under section 135 of the companies, act 2013 shall be needed to spend every fiscal year, at least 2% of the average net profits incur in the 3 immediately preceding fiscal years, in the pursuance of its corporate social responsibility scheme.
Asking for the Clarification
Finance Ministry would have been provided with the recommendations, the ITC must be provided for any amount paid exceeding a 2% provision. The query regarding the same provisions would have been raised that the same provision would be applied merely for those firms that meet the conditions of section 135 or it shall be applicable for others also. The same shall be hard to segregate expenditure between 2% and exceeding 2%. Indeed he stated that “provision will be applicable to all companies spending on CSR,”
After companies started approaching AARs to obtain clarifications merely to obtain the contradictory rulings, the ITC on CSR is in trend. Telangana AAR had stood for ITC on purchases related to CSR of the PSA oxygen plant and spare parts by Hyderabad-based Bambino Pasta Food Industries.
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The Uttar Pradesh AAR ruled in favour of the case of Dwarikesh Sugar Industries. Kerala AAR, for the case of Polycab wires ruled, the ITC does not be available for free distribution of electrical items such as switches, fans, cables, and others, to people affected by flood under CSR.
A clarification circular will be issued by the CBIC on CSR ITC, and no changes will be made to the budget provision. It is unlikely that the ITC for CSR will change in the budget provision, as CBIC will issue a clarificatory circular on it a clarification circular on CSR ITC is expected to be issued by the CBIC, but budgetary changes are unlikely
