Home/Corporate Laws/Page 7

Taxchopal Latest Questions

Ramesh Sharma
Enlightened
Asked: In:

  1. CA Vishnu Ram Enlightened

    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.
    See less
    • 0
Ramesh Sharma
Enlightened
Asked: In:

  1. CA Vishnu Ram Enlightened

    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.
    See less
    • 0
Ramesh Sharma
Enlightened
Asked: In:

  1. CA Vishnu Ram Enlightened

    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.

    See less
    • 0
Ramesh Sharma
Enlightened
Asked: In:

  1. CA Vishnu Ram Enlightened

    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.

    See less
    • 0
Ramesh Sharma
Enlightened
Asked: In:

  1. CA Vishnu Ram Enlightened

    For companies operating in multiple locations, the CSR expenditure should ideally be directed toward areas where the company has the most significant operational presence. Here are some key points to help decide: Core Area of Operations:Companies are encouraged to spend at least 15% of their CSR funRead more

    For companies operating in multiple locations, the CSR expenditure should ideally be directed toward areas where the company has the most significant operational presence. Here are some key points to help decide:

    • Core Area of Operations:
      Companies are encouraged to spend at least 15% of their CSR funds in the area where they have their primary business activities. This is usually determined by factors such as:

      • The location of the main office or headquarters.
      • The concentration of the workforce.
      • The area where the company’s core production, services, or business activities take place.

    • Flexibility to Spread Impact:
      While a significant portion of CSR spending should target the core area, companies are not restricted to only one location. They can also allocate funds to other areas where they operate if it creates additional social benefits. However, it’s important to ensure that the chosen area reflects the company’s primary business interests and community impact.

    • Objective of CSR Spending:
      The main goal is to generate a positive impact on the local community that is most closely associated with the company’s operations. Thus, the decision should be based on where your company can make the most meaningful contribution.

    • Documentation and Reporting:
      Whatever allocation you choose, maintain clear records. This will help in CSR reporting and ensure compliance with the guidelines under the Companies Act and the associated CSR Regulations.

    See less
    • 0
Ramesh Sharma
Enlightened
Asked: In:

  1. CA Sanjiv Kumar Enlightened Chartered Accountant

    Yes, a donation of money to a trust by a company can be treated as CSR expenditure if certain conditions are met. Here’s what you need to know: Eligibility Criteria: Trust’s Purpose:The trust must be established exclusively for undertaking CSR activities or have a proven track record of at least thrRead more

    Yes, a donation of money to a trust by a company can be treated as CSR expenditure if certain conditions are met. Here’s what you need to know:

    Eligibility Criteria:

    • Trust’s Purpose:
      The trust must be established exclusively for undertaking CSR activities or have a proven track record of at least three years in similar CSR projects. This ensures that the funds are used specifically for social welfare initiatives as outlined in Schedule VII of the Companies Act, 2013.

    • Utilization of Funds:
      The company must ensure that the donation is used solely for approved CSR activities. Proper documentation should be maintained to confirm that the funds are directed toward social causes.

    Important Points:

    • Non-Deductibility for Tax Purposes:
      While CSR expenditure is mandatory for companies and must be reported in the Annual Report, it cannot be claimed as a tax deduction under Section 37(1) of the Income Tax Act, 1961. However, donations to eligible organizations might qualify for deductions under other provisions (e.g., Section 80G), subject to separate conditions.

    • Board Approval and Reporting:
      The donation must be approved by the company’s Board as part of its CSR policy. The expenditure should then be disclosed in the Directors’ Report along with details of the CSR activities undertaken.

    See less
    • 0
Ramesh Sharma
Enlightened
Asked: In:

  1. CA Sanjiv Kumar Enlightened Chartered Accountant

    Under the Companies Act, 2013, the Corporate Social Responsibility (CSR) provisions under Section 135 are designed for companies that are profit-oriented and meet certain financial thresholds (net worth, turnover, or net profit). Section 8 companies, on the other hand, are established as not-for-proRead more

    Under the Companies Act, 2013, the Corporate Social Responsibility (CSR) provisions under Section 135 are designed for companies that are profit-oriented and meet certain financial thresholds (net worth, turnover, or net profit). Section 8 companies, on the other hand, are established as not-for-profit entities with a primary objective of promoting social causes, art, science, research, or social welfare.

    Key Points:

    • Nature of Section 8 Companies:
      Section 8 companies are created to operate on a non-profit basis. Their main objective is to further social, charitable, or other public welfare causes, and they do not distribute profits to shareholders.

    • CSR Applicability:
      The CSR provisions under Section 135 are applicable only to companies that meet certain financial thresholds (₹500 crores net worth, ₹1000 crores turnover, or ₹5 crores net profit) and are profit-making. Since Section 8 companies operate on a not-for-profit basis, they are not required to comply with CSR provisions.

    • Reasoning:
      The intent behind CSR is to encourage profit-making companies to contribute to social welfare by setting aside a portion of their profits for CSR activities. Section 8 companies, being inherently non-profit, are already geared toward social causes and are thus exempt from these additional CSR obligations.

    Conclusion:

    CSR provisions under Section 135 of the Companies Act, 2013 do not apply to Section 8 companies because their primary focus is on social welfare and they operate on a not-for-profit basis.

    See less
    • 0
Ramesh Sharma
Enlightened
Asked: In:

  1. CA Sanjiv Kumar Enlightened Chartered Accountant

    CSR (Corporate Social Responsibility) obligations under Section 135 of the Companies Act, 2013 became effective from the financial year 2014-15 (Assessment Year 2015-16). This means that companies meeting the prescribed CSR thresholds were required to start spending on CSR activities and report thesRead more

    CSR (Corporate Social Responsibility) obligations under Section 135 of the Companies Act, 2013 became effective from the financial year 2014-15 (Assessment Year 2015-16). This means that companies meeting the prescribed CSR thresholds were required to start spending on CSR activities and report these expenditures in their annual reports beginning with FY 2014-15.

    Key Points:

    • For Existing Companies:
      Companies that were in operation before the implementation of CSR provisions had to start complying from FY 2014-15.

    • For Newly Incorporated Companies:
      A company incorporated after CSR provisions came into force will generally have to start its CSR activities either in the financial year of its incorporation or in the immediately following financial year, as per the guidelines issued by the Ministry of Corporate Affairs.

    • Reporting Requirements:
      CSR details, including expenditure, must be disclosed in the Directors’ Report as part of the Annual Report filed with the Registrar of Companies.

    See less
    • 0
Ramesh Sharma
Enlightened
Asked: In:

  1. CA Sanjiv Kumar Enlightened Chartered Accountant

    Under Section 135 of the Companies Act, 2013, the Corporate Social Responsibility (CSR) provisions apply on a stand-alone basis to every company incorporated in India that meets the prescribed financial thresholds. This means: Each Company’s Individual Obligation:Whether it’s a holding company, a suRead more

    Under Section 135 of the Companies Act, 2013, the Corporate Social Responsibility (CSR) provisions apply on a stand-alone basis to every company incorporated in India that meets the prescribed financial thresholds. This means:

    • Each Company’s Individual Obligation:
      Whether it’s a holding company, a subsidiary, or any other corporate entity, the CSR requirements apply individually. Each company must evaluate its own financial criteria (net worth, turnover, or net profit) for CSR eligibility.

    • No Automatic Transfer of CSR Responsibility:
      The CSR mandate does not automatically flow from a holding company to its subsidiaries (or vice versa). If a subsidiary meets the threshold, it must comply with CSR provisions even if the holding company does not—and the reverse is also true.

    • Group Considerations:
      Even if companies are part of the same group, each entity is treated as a separate legal entity. Therefore, the CSR obligation is determined separately for each company.

    See less
    • 0
Load More Questions