MUMBAI: The tax benefit against
corporate social responsibility (CSR) spending, introduced by the Companies
Bill, 2012, which was recently passed by the Rajya Sabha, would vary widely
depending on the nature of such expenditure. At present, both tax and CSR consultants
are putting their heads together to chalk out a CSR strategy for India Inc,
which would also provide the best tax efficiency.
For instance, writing a cheque towards the PM's National Relief Fund (PMNRF) would entitle the donor company to a deduction, from taxable profits, of the entire donation amount. On the other hand, if a company has constructed a school building in a village, no tax benefit may be available — at least not without a drawn out litigation. While both the donation towards the PMNRF and promotion of education are activities that qualify as CSR spends under the companies bill, the tax benefits could vastly differ. The bill calls for companies having a net worth of Rs 500 crore or more, or a turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more to have a CSR spend of at least 2% of their average net profits of the past three years. The bill stops short of making CSR spend mandatory, as it states the board of directors "shall ensure" that the company spends towards CSR.
Schedule VII of the bill prescribes wide-ranging activities that could be part of a company's CSR policy, such as eradicating hunger and poverty, promotion of education, women empowerment, reducing child mortality and improving maternal health, environmental sustainability, employment enhancing vocational skills or contributions to central or state government set-up funds, including the PMNRF.
For instance, writing a cheque towards the PM's National Relief Fund (PMNRF) would entitle the donor company to a deduction, from taxable profits, of the entire donation amount. On the other hand, if a company has constructed a school building in a village, no tax benefit may be available — at least not without a drawn out litigation. While both the donation towards the PMNRF and promotion of education are activities that qualify as CSR spends under the companies bill, the tax benefits could vastly differ. The bill calls for companies having a net worth of Rs 500 crore or more, or a turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more to have a CSR spend of at least 2% of their average net profits of the past three years. The bill stops short of making CSR spend mandatory, as it states the board of directors "shall ensure" that the company spends towards CSR.
Schedule VII of the bill prescribes wide-ranging activities that could be part of a company's CSR policy, such as eradicating hunger and poverty, promotion of education, women empowerment, reducing child mortality and improving maternal health, environmental sustainability, employment enhancing vocational skills or contributions to central or state government set-up funds, including the PMNRF.
