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.

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.