Yes, if a company has appointed personnel exclusively for implementing its CSR activities, the expenditure incurred on these personnel (such as salaries, wages, and related benefits) can be included as part of the CSR expenditure. Here’s what you need to know: Key Points: Exclusive Engagement:The stRead more
Yes, if a company has appointed personnel exclusively for implementing its CSR activities, the expenditure incurred on these personnel (such as salaries, wages, and related benefits) can be included as part of the CSR expenditure. Here’s what you need to know:
Key Points:
Exclusive Engagement: The staff must be exclusively engaged in CSR-related activities. Their work should directly contribute to the implementation, monitoring, or administration of CSR projects.
Direct Attribution: Only those expenses that are directly attributable to CSR activities can be included. This means that if an employee is working solely on CSR projects, their compensation, travel, and other expenses may be counted as part of CSR spending.
Proper Documentation: It’s crucial to maintain clear records and segregate these costs in your accounts. Proper documentation will help substantiate that these expenditures are solely for CSR purposes if ever reviewed by regulators.
Compliance with CSR Mandates: Even though these personnel costs are allowed as CSR expenditure, they must still fall within the overall CSR spending limits and guidelines set under Section 135 of the Companies Act, 2013.
The CSR (Corporate Social Responsibility) provisions under the Companies Act, 2013 are designed for companies that are incorporated in India. This means: Indian-Incorporated Companies:Companies that are incorporated in India and meet the financial thresholds (net worth, turnover, or net profit) mustRead more
The CSR (Corporate Social Responsibility) provisions under the Companies Act, 2013 are designed for companies that are incorporated in India. This means:
Indian-Incorporated Companies: Companies that are incorporated in India and meet the financial thresholds (net worth, turnover, or net profit) must comply with the CSR requirements as specified under Section 135.
Foreign Companies: Pure foreign companies (i.e., companies not incorporated in India) are not required to follow the CSR provisions under the Companies Act, 2013.
Indian Subsidiaries of Foreign Companies: However, if a foreign company has a subsidiary or branch incorporated in India, that entity must comply with the CSR requirements if it meets the prescribed thresholds.
CSR (Corporate Social Responsibility) activities are primarily undertaken for social welfare rather than for profit-making. However, in some cases, a CSR initiative might generate a surplus or profit. Here’s how such profits should be treated: 1. Separation from CSR Mandated Spend CSR Obligation RemRead more
CSR (Corporate Social Responsibility) activities are primarily undertaken for social welfare rather than for profit-making. However, in some cases, a CSR initiative might generate a surplus or profit. Here’s how such profits should be treated:
1. Separation from CSR Mandated Spend
CSR Obligation Remains Unchanged: Even if a CSR project generates a profit, the company’s obligation to spend at least 2% of its average net profit on CSR (as per Section 135) remains unaffected.
No Set-Off: The profits earned from CSR activities cannot be set off against the mandated CSR expenditure.
2. Treatment as Business Income
Ordinary Business Income: Any profit arising from a CSR activity is treated as ordinary business income of the company.
Taxation: Such profits are subject to tax in the usual manner, just like income from any other business venture.
3. Reinvestment Option
Reinvestment in CSR: Although the profits must be taxed as business income, companies may choose to reinvest these funds in further CSR initiatives.
No Special Tax Benefit: Reinvesting the profit does not provide an additional tax deduction specifically for the fact that it originated from a CSR activity.
Key Takeaways
Mandatory CSR Spend Unaffected: Even if a CSR project is profitable, the company must still meet the prescribed CSR spending obligation.
Separate Accounting: Profits from CSR activities should be accounted for as part of the company’s overall business income.
Taxation as Usual: These profits are taxed at the applicable corporate tax rates.
nder Section 135 of the Companies Act, 2013, a company is required to undertake Corporate Social Responsibility (CSR) activities if, in any financial year, it meets at least one of the following thresholds based on its immediately preceding financial year: Net Worth: ₹500 crores or more Turnover: ₹1Read more
nder Section 135 of the Companies Act, 2013, a company is required to undertake Corporate Social Responsibility (CSR) activities if, in any financial year, it meets at least one of the following thresholds based on its immediately preceding financial year:
Net Worth: ₹500 crores or more
Turnover: ₹1000 crores or more
Net Profit: ₹5 crores or more
How Does Loss in Preceding Years Affect CSR Compliance?
Turnover Criterion: Even if a company has a turnover of ₹1000 crores or more, it qualifies for CSR compliance regardless of its profitability. In other words, the requirement to have a CSR policy and report CSR activities is triggered by the turnover criterion alone.
Calculation of CSR Spend: The actual amount a company must spend on CSR is computed as 2% of the average net profit of the company for the preceding three financial years.
If the company has incurred losses in one or more of those years, the average net profit may be low or even negative.
In such cases, while the company is still required to comply with all the CSR provisions (such as forming a CSR Committee and disclosing CSR activities), its mandatory CSR expenditure may be nil or lower due to a negative or low average net profit.
Section 135 of the Companies Act, 2013 lays down the provisions for Corporate Social Responsibility (CSR). It specifies which companies are required to undertake CSR activities, along with the extent of expenditure. Here’s what you need to know: Who Is Covered Under Section 135? A company is requireRead more
Section 135 of the Companies Act, 2013 lays down the provisions for Corporate Social Responsibility (CSR). It specifies which companies are required to undertake CSR activities, along with the extent of expenditure. Here’s what you need to know:
Who Is Covered Under Section 135?
A company is required to comply with Section 135 if, in any financial year, it satisfies any one of the following thresholds based on its immediately preceding financial year:
Net Worth: The company’s net worth is ₹500 crores or more.
Turnover: The company’s turnover is ₹1,000 crores or more.
Net Profit: The company’s net profit is ₹5 crores or more.
Key Points:
Applicability to Both Public and Private Companies: Both public and private companies meeting these financial thresholds must adopt a CSR policy and spend at least 2% of their average net profit (calculated over the preceding three financial years) on eligible CSR activities.
CSR Committee: Such companies must form a CSR Committee (which must include at least one independent director) to oversee CSR activities and ensure transparency.
Exclusions: Certain companies, like dormant companies or those falling under specific exemptions, may not be required to comply with CSR provisions even if they meet the financial criteria.
Year-by-Year Assessment: The CSR obligation is determined annually based on the financial performance of the company in the immediately preceding financial year. If a company falls below the threshold in subsequent years, the CSR mandate does not apply for those years.
Summary Table
Threshold Criteria
Requirement
Net Worth
₹500 crores or more
Turnover
₹1,000 crores or more
Net Profit
₹5 crores or more
If any one of these criteria is met in the immediately preceding financial year, the company is obligated to implement CSR activities as per Section 135.
Conclusion
Section 135 applies to companies (both public and private) that meet the above financial thresholds. If a company qualifies, it must form a CSR Committee, develop a CSR policy, and spend at least 2% of its average net profit (from the past three years) on projects listed under Schedule VII of the Act.
No, the phrase “any financial year” in Section 135(1) of the Companies Act, 2013 does not mean that the CSR obligation applies for every financial year throughout the entire history of the company. Instead, it means that the CSR provisions are applicable in any particular financial year during whichRead more
No, the phrase “any financial year” in Section 135(1) of the Companies Act, 2013 does not mean that the CSR obligation applies for every financial year throughout the entire history of the company. Instead, it means that the CSR provisions are applicable in any particular financial year during which the company meets the prescribed thresholds.
Key Points to Understand:
Assessment Based on Specific Years: The CSR obligation is determined by checking whether the company satisfies certain criteria (such as net worth, turnover, or profit thresholds) in the immediately preceding financial year or on an average over the preceding three years. It’s not a lifetime condition based on one single financial year from the company’s inception.
Yearly Evaluation: For each financial year, the company’s performance is evaluated. If in that financial year (or in any of the relevant preceding years) the thresholds are met, then the company is required to spend the prescribed percentage on CSR activities for that year.
Not an “Evergreen” Obligation: If the company’s performance later falls below the thresholds, the CSR obligation may no longer apply for those subsequent financial years.
Conclusion:
The term “any financial year” refers to the fact that the CSR requirement is assessed on a year-by-year basis (or using the average of specific recent years), rather than implying that CSR spending is mandatory for every financial year in the entire history of the company.
CSR (Corporate Social Responsibility) is not automatically applicable to all companies—it depends on whether a company meets certain financial thresholds specified in Section 135 of the Companies Act, 2013. This applies to both public and private companies. Key Points: Mandate Criteria:CSR is mandatRead more
CSR (Corporate Social Responsibility) is not automatically applicable to all companies—it depends on whether a company meets certain financial thresholds specified in Section 135 of the Companies Act, 2013. This applies to both public and private companies.
Key Points:
Mandate Criteria: CSR is mandatory for a company if, in the immediately preceding financial year, it meets any of these thresholds:
Net Worth: ₹500 crores or more
Turnover: ₹1,000 crores or more
Net Profit: ₹5 crores or more
For Private Companies: If a private company meets any of the above criteria, it is required to have a CSR policy and spend the prescribed percentage of its profits on eligible CSR activities.
Many smaller private companies may not meet these thresholds and, therefore, are not required to comply with CSR provisions.
Reporting: Companies subject to CSR must disclose their CSR activities in their Annual Report and Directors’ Report, even if they are private companies.
Under Section 135(1) of the Companies Act, 2013, any company that is required to form a Corporate Social Responsibility (CSR) Committee must include at least one independent director in that committee. This requirement applies regardless of whether the company is a public company or a private companRead more
Under Section 135(1) of the Companies Act, 2013, any company that is required to form a Corporate Social Responsibility (CSR) Committee must include at least one independent director in that committee. This requirement applies regardless of whether the company is a public company or a private company.
Key Points to Understand:
CSR Applicability: A company must form a CSR Committee if it meets the prescribed thresholds (net worth, turnover, or profit). Once a company falls under these criteria, forming a CSR Committee becomes mandatory.
Independent Director Requirement: The law specifically mandates that the CSR Committee should have at least one independent director. This is to ensure transparency and unbiased decision-making in matters related to CSR.
Private vs. Public Companies: While many private companies may not be required to have independent directors for their overall board (if they are smaller or do not meet certain criteria), if such a private company is subject to the CSR provisions, it must include at least one independent director on its CSR Committee.
Conclusion:
If your private company meets the CSR criteria under Section 135, you are required to form a CSR Committee that includes at least one independent director, even if you are not otherwise mandated to have independent directors on your board.
While companies with a CSR obligation under the Companies Act, 2013 must report on their CSR activities, there isn’t a separate filing solely dedicated to CSR with the Registrar of Companies (RoC). Instead, the details of CSR activities are required to be disclosed as part of the overall Annual RepoRead more
While companies with a CSR obligation under the Companies Act, 2013 must report on their CSR activities, there isn’t a separate filing solely dedicated to CSR with the Registrar of Companies (RoC). Instead, the details of CSR activities are required to be disclosed as part of the overall Annual Report and Directors’ Report.
Key Points:
Disclosure in the Annual Report: Companies must include a section on CSR in their Directors’ Report. This section should detail:
The CSR policy adopted by the company.
Projects or programs undertaken.
Amount spent on CSR activities.
Reasons for any unspent CSR funds, if applicable.
Filing with the RoC: Since the Annual Report (which includes the CSR disclosure) is filed with the Registrar of Companies, CSR information is indirectly submitted to the RoC along with the company’s financial statements and annual return.
Additional Public Disclosure: Companies are also encouraged to publish details of their CSR activities on their corporate website, ensuring transparency for stakeholders.
When a company spends more on Corporate Social Responsibility (CSR) activities than the mandated amount, here's how such additional expenses are treated for tax purposes: 1. CSR Expenditure is Non-Deductible Mandatory and Additional CSR Spending:Whether the CSR expenditure is exactly at the mandatedRead more
When a company spends more on Corporate Social Responsibility (CSR) activities than the mandated amount, here’s how such additional expenses are treated for tax purposes:
1. CSR Expenditure is Non-Deductible
Mandatory and Additional CSR Spending: Whether the CSR expenditure is exactly at the mandated level (as per Section 135 of the Companies Act, 2013) or exceeds it, the entire amount spent on CSR activities is not allowed as a deduction while computing taxable income under the Income Tax Act.
Reasoning: The underlying principle is that CSR spending is intended to promote social welfare rather than to generate business income. As such, these expenditures do not qualify as business expenses incurred wholly and exclusively for earning revenue.
2. Additional CSR Spending
Extra Spending Beyond the Mandate: Any extra amount spent on CSR activities—beyond the prescribed minimum requirement—is treated in the same way as the mandated CSR spend, meaning that it cannot be claimed as a tax deduction.
Implication for Companies: While a company may choose to invest more in social initiatives to enhance its corporate image or for altruistic reasons, such additional expenditure will not reduce its taxable income. All CSR spending remains non-deductible, regardless of the amount.
3. Financial Reporting vs. Tax Reporting
Financial Statements: Companies will record their CSR expenditure in their financial statements as part of their corporate social responsibility initiatives.
Tax Computation: However, when preparing the tax return, the entire amount spent on CSR (including any additional spending beyond the mandated requirement) is treated as a non-deductible expense. This means it will not be subtracted from the company’s profits for tax purposes.
In case the company has appointed personnel exclusively for implementing the CSR activities of the company, can the expenditure incurred towards such personnel in terms of staff cost etc. be included in the expenditure earmarked for CSR activities?
Yes, if a company has appointed personnel exclusively for implementing its CSR activities, the expenditure incurred on these personnel (such as salaries, wages, and related benefits) can be included as part of the CSR expenditure. Here’s what you need to know: Key Points: Exclusive Engagement:The stRead more
Yes, if a company has appointed personnel exclusively for implementing its CSR activities, the expenditure incurred on these personnel (such as salaries, wages, and related benefits) can be included as part of the CSR expenditure. Here’s what you need to know:
Key Points:
-
-
-
-
See lessExclusive Engagement:
The staff must be exclusively engaged in CSR-related activities. Their work should directly contribute to the implementation, monitoring, or administration of CSR projects.
Direct Attribution:
Only those expenses that are directly attributable to CSR activities can be included. This means that if an employee is working solely on CSR projects, their compensation, travel, and other expenses may be counted as part of CSR spending.
Proper Documentation:
It’s crucial to maintain clear records and segregate these costs in your accounts. Proper documentation will help substantiate that these expenditures are solely for CSR purposes if ever reviewed by regulators.
Compliance with CSR Mandates:
Even though these personnel costs are allowed as CSR expenditure, they must still fall within the overall CSR spending limits and guidelines set under Section 135 of the Companies Act, 2013.
Are the provisions with regard to CSR applicable to foreign companies?
The CSR (Corporate Social Responsibility) provisions under the Companies Act, 2013 are designed for companies that are incorporated in India. This means: Indian-Incorporated Companies:Companies that are incorporated in India and meet the financial thresholds (net worth, turnover, or net profit) mustRead more
The CSR (Corporate Social Responsibility) provisions under the Companies Act, 2013 are designed for companies that are incorporated in India. This means:
-
-
-
See lessIndian-Incorporated Companies:
Companies that are incorporated in India and meet the financial thresholds (net worth, turnover, or net profit) must comply with the CSR requirements as specified under Section 135.
Foreign Companies:
Pure foreign companies (i.e., companies not incorporated in India) are not required to follow the CSR provisions under the Companies Act, 2013.
Indian Subsidiaries of Foreign Companies:
However, if a foreign company has a subsidiary or branch incorporated in India, that entity must comply with the CSR requirements if it meets the prescribed thresholds.
Where CSR activities lead to profits, how should such profits be treated?
CSR (Corporate Social Responsibility) activities are primarily undertaken for social welfare rather than for profit-making. However, in some cases, a CSR initiative might generate a surplus or profit. Here’s how such profits should be treated: 1. Separation from CSR Mandated Spend CSR Obligation RemRead more
CSR (Corporate Social Responsibility) activities are primarily undertaken for social welfare rather than for profit-making. However, in some cases, a CSR initiative might generate a surplus or profit. Here’s how such profits should be treated:
1. Separation from CSR Mandated Spend
Even if a CSR project generates a profit, the company’s obligation to spend at least 2% of its average net profit on CSR (as per Section 135) remains unaffected.
The profits earned from CSR activities cannot be set off against the mandated CSR expenditure.
2. Treatment as Business Income
Any profit arising from a CSR activity is treated as ordinary business income of the company.
Such profits are subject to tax in the usual manner, just like income from any other business venture.
3. Reinvestment Option
Although the profits must be taxed as business income, companies may choose to reinvest these funds in further CSR initiatives.
Reinvesting the profit does not provide an additional tax deduction specifically for the fact that it originated from a CSR activity.
Key Takeaways
- Mandatory CSR Spend Unaffected:
- Separate Accounting:
- Taxation as Usual:
See lessEven if a CSR project is profitable, the company must still meet the prescribed CSR spending obligation.
Profits from CSR activities should be accounted for as part of the company’s overall business income.
These profits are taxed at the applicable corporate tax rates.
What is the applicability of Section 135 of the Companies Act, 2013?
nder Section 135 of the Companies Act, 2013, a company is required to undertake Corporate Social Responsibility (CSR) activities if, in any financial year, it meets at least one of the following thresholds based on its immediately preceding financial year: Net Worth: ₹500 crores or more Turnover: ₹1Read more
nder Section 135 of the Companies Act, 2013, a company is required to undertake Corporate Social Responsibility (CSR) activities if, in any financial year, it meets at least one of the following thresholds based on its immediately preceding financial year:
How Does Loss in Preceding Years Affect CSR Compliance?
-
-
- If the company has incurred losses in one or more of those years, the average net profit may be low or even negative.
- In such cases, while the company is still required to comply with all the CSR provisions (such as forming a CSR Committee and disclosing CSR activities), its mandatory CSR expenditure may be nil or lower due to a negative or low average net profit.
See lessTurnover Criterion:
Even if a company has a turnover of ₹1000 crores or more, it qualifies for CSR compliance regardless of its profitability. In other words, the requirement to have a CSR policy and report CSR activities is triggered by the turnover criterion alone.
Calculation of CSR Spend:
The actual amount a company must spend on CSR is computed as 2% of the average net profit of the company for the preceding three financial years.
What is the applicability of Section 135 of the Companies Act, 2013?
Section 135 of the Companies Act, 2013 lays down the provisions for Corporate Social Responsibility (CSR). It specifies which companies are required to undertake CSR activities, along with the extent of expenditure. Here’s what you need to know: Who Is Covered Under Section 135? A company is requireRead more
Section 135 of the Companies Act, 2013 lays down the provisions for Corporate Social Responsibility (CSR). It specifies which companies are required to undertake CSR activities, along with the extent of expenditure. Here’s what you need to know:
Who Is Covered Under Section 135?
A company is required to comply with Section 135 if, in any financial year, it satisfies any one of the following thresholds based on its immediately preceding financial year:
The company’s net worth is ₹500 crores or more.
The company’s turnover is ₹1,000 crores or more.
The company’s net profit is ₹5 crores or more.
Key Points:
Applicability to Both Public and Private Companies:
Both public and private companies meeting these financial thresholds must adopt a CSR policy and spend at least 2% of their average net profit (calculated over the preceding three financial years) on eligible CSR activities.
CSR Committee:
Such companies must form a CSR Committee (which must include at least one independent director) to oversee CSR activities and ensure transparency.
Exclusions:
Certain companies, like dormant companies or those falling under specific exemptions, may not be required to comply with CSR provisions even if they meet the financial criteria.
Year-by-Year Assessment:
The CSR obligation is determined annually based on the financial performance of the company in the immediately preceding financial year. If a company falls below the threshold in subsequent years, the CSR mandate does not apply for those years.
Summary Table
If any one of these criteria is met in the immediately preceding financial year, the company is obligated to implement CSR activities as per Section 135.
Conclusion
Section 135 applies to companies (both public and private) that meet the above financial thresholds. If a company qualifies, it must form a CSR Committee, develop a CSR policy, and spend at least 2% of its average net profit (from the past three years) on projects listed under Schedule VII of the Act.
See lessDoes ‘any financial year’ mentioned in section 135(1) mean at any time in the history of the company.
No, the phrase “any financial year” in Section 135(1) of the Companies Act, 2013 does not mean that the CSR obligation applies for every financial year throughout the entire history of the company. Instead, it means that the CSR provisions are applicable in any particular financial year during whichRead more
No, the phrase “any financial year” in Section 135(1) of the Companies Act, 2013 does not mean that the CSR obligation applies for every financial year throughout the entire history of the company. Instead, it means that the CSR provisions are applicable in any particular financial year during which the company meets the prescribed thresholds.
Key Points to Understand:
Assessment Based on Specific Years:
The CSR obligation is determined by checking whether the company satisfies certain criteria (such as net worth, turnover, or profit thresholds) in the immediately preceding financial year or on an average over the preceding three years. It’s not a lifetime condition based on one single financial year from the company’s inception.
Yearly Evaluation:
For each financial year, the company’s performance is evaluated. If in that financial year (or in any of the relevant preceding years) the thresholds are met, then the company is required to spend the prescribed percentage on CSR activities for that year.
Not an “Evergreen” Obligation:
If the company’s performance later falls below the thresholds, the CSR obligation may no longer apply for those subsequent financial years.
Conclusion:
The term “any financial year” refers to the fact that the CSR requirement is assessed on a year-by-year basis (or using the average of specific recent years), rather than implying that CSR spending is mandatory for every financial year in the entire history of the company.
See lessIs CSR mandatory for private companies also?
CSR (Corporate Social Responsibility) is not automatically applicable to all companies—it depends on whether a company meets certain financial thresholds specified in Section 135 of the Companies Act, 2013. This applies to both public and private companies. Key Points: Mandate Criteria:CSR is mandatRead more
CSR (Corporate Social Responsibility) is not automatically applicable to all companies—it depends on whether a company meets certain financial thresholds specified in Section 135 of the Companies Act, 2013. This applies to both public and private companies.
Key Points:
-
- Net Worth: ₹500 crores or more
- Turnover: ₹1,000 crores or more
- Net Profit: ₹5 crores or more
-
- Many smaller private companies may not meet these thresholds and, therefore, are not required to comply with CSR provisions.
-
See lessMandate Criteria:
CSR is mandatory for a company if, in the immediately preceding financial year, it meets any of these thresholds:
For Private Companies:
If a private company meets any of the above criteria, it is required to have a CSR policy and spend the prescribed percentage of its profits on eligible CSR activities.
Reporting:
Companies subject to CSR must disclose their CSR activities in their Annual Report and Directors’ Report, even if they are private companies.
Section 135(1) states that the CSR Committee should have at least one independent director. Do private companies need to appoint an independent director to comply with this section?
Under Section 135(1) of the Companies Act, 2013, any company that is required to form a Corporate Social Responsibility (CSR) Committee must include at least one independent director in that committee. This requirement applies regardless of whether the company is a public company or a private companRead more
Under Section 135(1) of the Companies Act, 2013, any company that is required to form a Corporate Social Responsibility (CSR) Committee must include at least one independent director in that committee. This requirement applies regardless of whether the company is a public company or a private company.
Key Points to Understand:
CSR Applicability:
A company must form a CSR Committee if it meets the prescribed thresholds (net worth, turnover, or profit). Once a company falls under these criteria, forming a CSR Committee becomes mandatory.
Independent Director Requirement:
The law specifically mandates that the CSR Committee should have at least one independent director. This is to ensure transparency and unbiased decision-making in matters related to CSR.
Private vs. Public Companies:
While many private companies may not be required to have independent directors for their overall board (if they are smaller or do not meet certain criteria), if such a private company is subject to the CSR provisions, it must include at least one independent director on its CSR Committee.
Conclusion:
If your private company meets the CSR criteria under Section 135, you are required to form a CSR Committee that includes at least one independent director, even if you are not otherwise mandated to have independent directors on your board.
See lessIs there any requirement of filing Annual Report on CSR activities with the Registrar of Companies?
While companies with a CSR obligation under the Companies Act, 2013 must report on their CSR activities, there isn’t a separate filing solely dedicated to CSR with the Registrar of Companies (RoC). Instead, the details of CSR activities are required to be disclosed as part of the overall Annual RepoRead more
While companies with a CSR obligation under the Companies Act, 2013 must report on their CSR activities, there isn’t a separate filing solely dedicated to CSR with the Registrar of Companies (RoC). Instead, the details of CSR activities are required to be disclosed as part of the overall Annual Report and Directors’ Report.
Key Points:
-
- The CSR policy adopted by the company.
- Projects or programs undertaken.
- Amount spent on CSR activities.
- Reasons for any unspent CSR funds, if applicable.
-
-
See lessDisclosure in the Annual Report:
Companies must include a section on CSR in their Directors’ Report. This section should detail:
Filing with the RoC:
Since the Annual Report (which includes the CSR disclosure) is filed with the Registrar of Companies, CSR information is indirectly submitted to the RoC along with the company’s financial statements and annual return.
Additional Public Disclosure:
Companies are also encouraged to publish details of their CSR activities on their corporate website, ensuring transparency for stakeholders.
What is the treatment of expenses incurred beyond that of mandated CSR spend ?
When a company spends more on Corporate Social Responsibility (CSR) activities than the mandated amount, here's how such additional expenses are treated for tax purposes: 1. CSR Expenditure is Non-Deductible Mandatory and Additional CSR Spending:Whether the CSR expenditure is exactly at the mandatedRead more
When a company spends more on Corporate Social Responsibility (CSR) activities than the mandated amount, here’s how such additional expenses are treated for tax purposes:
1. CSR Expenditure is Non-Deductible
Mandatory and Additional CSR Spending:
Whether the CSR expenditure is exactly at the mandated level (as per Section 135 of the Companies Act, 2013) or exceeds it, the entire amount spent on CSR activities is not allowed as a deduction while computing taxable income under the Income Tax Act.
Reasoning:
The underlying principle is that CSR spending is intended to promote social welfare rather than to generate business income. As such, these expenditures do not qualify as business expenses incurred wholly and exclusively for earning revenue.
2. Additional CSR Spending
Extra Spending Beyond the Mandate:
Any extra amount spent on CSR activities—beyond the prescribed minimum requirement—is treated in the same way as the mandated CSR spend, meaning that it cannot be claimed as a tax deduction.
Implication for Companies:
While a company may choose to invest more in social initiatives to enhance its corporate image or for altruistic reasons, such additional expenditure will not reduce its taxable income. All CSR spending remains non-deductible, regardless of the amount.
3. Financial Reporting vs. Tax Reporting
-
-
See lessFinancial Statements:
Companies will record their CSR expenditure in their financial statements as part of their corporate social responsibility initiatives.
Tax Computation:
However, when preparing the tax return, the entire amount spent on CSR (including any additional spending beyond the mandated requirement) is treated as a non-deductible expense. This means it will not be subtracted from the company’s profits for tax purposes.