Corporate Social Responsibility refers to activities undertaken by a company to fulfill its statutory obligation under section 135 of the Companies Act, 2013, and by the CSR Rules. These activities, however, must not include certain exclusions that are clearly defined in rule 2(1)(d) of the CSR Rules. The following do not qualify as CSR activities.
Activities undertaken in the normal course of business are generally excluded from CSR. However, there was a temporary relaxation granted to companies involved in research and development of new vaccines, drugs, and medical devices in connection with COVID-19 during the financial years 2020-21, 2021-22, and 2022-23. Such activities were considered as CSR if conducted in collaboration with institutions or organizations specified under item (ix) of Schedule VII to the Act and separately disclosed in the annual report on CSR in the Board’s Report.
Any activity conducted outside India is excluded from CSR unless it pertains to the training of Indian sports personnel representing a state or the nation at the national or international level. Contributions made directly or indirectly to any political party under section 182 of the Act are also not considered CSR activities. Any activity that benefits only the employees of the company or their families is excluded from CSR obligations. Marketing-driven activities that are supported for promotional gains or brand visibility are also excluded. Lastly, any activity undertaken to fulfill other statutory obligations under applicable laws in India is not considered CSR.
This definition forms an exhaustive framework and sets a broad canvas. Therefore, any activity not excluded under rule 2(1)(d) and relatable to Schedule VII of the Act may be considered a CSR activity if it aligns with the obligations of section 135. General Circulars of the Ministry of Corporate Affairs further clarify that activities related to items listed in Schedule VII qualify as CSR. Thus, activities that are not among the exclusions and are relatable to the items listed under Schedule VII qualify as CSR if carried out in fulfillment of section 135 obligations.
Companies must perform CSR activities according to their CSR policies and ensure they are not part of normal business activities.
Activities Not Considered as CSR
The definition of CSR under rule 2(1)(d) makes it clear which activities are not considered CSR. Activities in the normal course of business, activities outside India except for sports training as mentioned earlier, political contributions, employee benefit programs, marketing and sponsorship-based activities for product promotion, and activities undertaken to comply with other laws in force are not recognized as CSR.
CSR Spending Obligation
Every company covered under section 135(1) must spend at least two percent of its average net profits from the three immediately preceding financial years towards CSR in every financial year. If the company has not completed three financial years since incorporation, the average net profit is calculated for the years since incorporation. Companies are also encouraged to focus their CSR spending on the local areas near their operations. For companies with operations in multiple locations, they may choose which area to prioritize for CSR spending.
The intent behind CSR provisions is to align corporate activities with national priorities and Sustainable Development Goals. If the company fails to spend the required amount, the Board must disclose the reasons in the Board’s Report. In such a case, unless the unspent amount relates to an ongoing project, it must be transferred to a fund specified in Schedule VII within six months after the end of the financial year.
Calculation of CSR Obligation
CSR spending is based on average net profits determined by section 198 of the Act, with specific exclusions as detailed under rule 2(1)(h) of the CSR Rules. Section 198 involves adjustments to net profits, such as removing capital receipts and expenses, income tax, and past losses. Profit Before Tax is generally used, but must be adjusted per section 198 to reflect net profit accurately.
The Companies Amendment Act of 2017 clarified that net profit for CSR excludes certain items, bringing consistency between section 198 and the CSR Rules. Rule 2(1)(h) defines net profit to exclude profits from overseas branches and dividends received from other Indian companies that are CSR-compliant. For foreign companies, net profit must be determined based on the profit and loss account prepared under section 381 and section 198.
This clarification resolves earlier inconsistencies between section 198 and the CSR Rules. Simply using gross profit or profit before tax does not suffice for CSR purposes. Accurate calculation under section 198, excluding items under rule 2(1)(h), is necessary to determine applicability under section 135(1).
Method of Net Profit Calculation
Start with profit before tax as per the statement of profit and loss. Add items specified under section 198(5)(b), 198(5)(c), and 198(5)(d). Deduct profits from capital nature transactions such as premiums on shares or debentures, profit from the sale of forfeited shares, the sale of undertakings, immovable property,, or fixed assets, and unrealized or notional gains. This yields net profit under section 198.
Then deduct profits from overseas branches and dividends from other CSR-compliant Indian companies. The result is the net profit figure used to determine CSR obligations.
Example of Net Profit and CSR Requirement
Assume a company has profits for three preceding years as follows: 2019-20 profit of 10 crore, 2020-21 loss of 2.5 crore, and 2021-22 profit of 5.5 crore. The average net profit is (10 – 2.5 + 5.5) divided by 3, which equals 4.33 crore. The CSR obligation would be two percent of this, which is 8.66 lakh.
CSR Expenditure
CSR expenditure includes amounts spent on continuing and non-continuing projects. It may also include administrative overheads up to five percent of total CSR expenditure and impact assessment costs up to two percent of CSR expenditure or fifty lakh rupees, whichever is higher. The total of all these figures represents total CSR expenditure for the year.
Unspent CSR Amount
If the company’s CSR obligation exceeds its CSR expenditure, the difference is the unspent CSR amount. This must either be transferred to the Unspent CSR Account (for ongoing projects) within 30 days after the financial year ends or to a fund listed in Schedule VII (for other projects) within six months.
Surplus from CSR Activities
Surplus from CSR refers to income generated from CSR activities, such as interest, sales of materials, or revenue from projects. These surpluses cannot be added to business profits. They must be reinvested into the same project, transferred to the Unspent CSR Account, or transferred to a Schedule VII fund within six months of the end of the financial year. The surplus is not included in CSR expenditure comparisons or future set-offs.
CSR Implementation Through Agencies
Companies may undertake CSR activities either directly or through implementing agencies. Acceptable agencies include companies under section 8, registered trusts or societies with exemptions under section 10(23C) or section 12A and 80G of the Income-tax Act. These can be established by the company or the government, not through legislative acts. Agencies must have a track record of at least three years.
From April 1, 2021, every implementing agency must register with the Central Government by filing Form CSR-1 and must have a valid CSR registration number before they can be engaged by companies. This number must be disclosed in the company’s annual CSR report.
Companies may also engage international organizations for the design, evaluation, and monitoring of projects or for building internal CSR capacity. Companies can also collaborate with each other on CSR initiatives, but each company’s CSR committee must report separately.
CSR Project Implementation Modalities
The implementation of Corporate Social Responsibility activities involves the adoption of structured strategies that align with a company’s values and objectives. Companies can undertake CSR projects in several ways, such as through their initiatives, through registered trusts or societies, or by collaborating with external agencies. The selection of an implementation mode depends on the company’s expertise, budget, the nature of the CSR activity, and compliance obligations under the Companies Act, 2013.
Direct Implementation
Some companies, particularly large corporations with internal capabilities and a well-established CSR cell, choose to implement CSR projects directly. This method offers greater control over the quality, efficiency, and visibility of the program. In-house implementation allows for closer monitoring, immediate decision-making, and more direct engagement with beneficiaries. However, it also requires the company to dedicate personnel, systems, and other resources to manage the entire CSR lifecycle, from planning to reporting. Direct implementation is more suitable for long-term or large-scale projects that align closely with the company’s business objectives or social mission.
Implementation through Trusts, Societies, or Section 8 Companies
Another popular method of implementation is through a not-for-profit entity such as a registered trust, society, or a Section 8 company established by the company or its holding, subsidiary, or associate company. According to the Companies (CSR Policy) Rules, 2014, these entities must be registered with the Ministry of Corporate Affairs (MCA) and possess a unique CSR registration number. This registration ensures transparency and accountability in CSR spending. If a company chooses to route its CSR projects through external implementing agencies, it must ensure that the agency has at least three years of track record in similar activities and complies with all requirements stipulated by the MCA. These entities allow for more flexibility and wider reach, as they can leverage existing expertise and networks in specific social sectors. Additionally, implementation through such entities helps companies manage multiple CSR projects across different geographic regions simultaneously.
Collaboration with Other Companies
The Companies Act, 2013, also allows two or more companies to come together and undertake CSR projects jointly, provided each company can individually report on the project’s outcomes. This collaboration can be beneficial for pooling financial and human resources, especially in projects that require large-scale investment or have a broader geographic or thematic scope. Joint implementation often leads to innovation and shared learning and enhances the impact of CSR efforts by enabling companies to leverage each other’s strengths and networks.
Engaging International Organizations
To design, monitor, and evaluate CSR projects, companies may engage international organizations like the United Nations Development Programme (UNDP), World Health Organization (WHO), or other similar institutions. These organizations bring in global expertise, credibility, and robust frameworks for monitoring and impact assessment. However, the implementation must still comply with Indian legal provisions, and any foreign collaboration must be by the Foreign Contribution (Regulation) Act, 2010, and other applicable laws.
Capacity Building for CSR
Capacity building is an essential aspect of successful CSR implementation. Companies must invest in training internal teams or partner with professional agencies to ensure that the design, implementation, and monitoring of CSR initiatives are effective. Capacity building includes training staff, developing strategic frameworks, understanding regulatory requirements, engaging with stakeholders, and adopting technology for data management. The Companies (CSR Policy) Rules permit expenditure of up to 5 percent of the total CSR expenditure on capacity building, either for the company’s personnel or implementing agencies. This enables a strong foundation for sustained and impactful CSR activities.
Monitoring CSR Activities
Monitoring is a crucial part of the CSR process. Effective monitoring helps in assessing whether CSR projects are being implemented as planned and are delivering the desired results. It also ensures transparency and accountability in the use of funds. The CSR Committee of the Board is responsible for monitoring the implementation of CSR projects and reporting progress to the Board of Directors. A robust monitoring mechanism involves setting up timelines, measurable indicators, regular field visits, review meetings, and documentation of outcomes.
Key Monitoring Mechanisms
Companies must establish internal control systems to ensure proper utilization of funds and compliance with CSR policy. Monitoring tools include physical verification of project sites, third-party evaluations, social audits, and periodic reporting. Key performance indicators (KPIs) must be predefined at the planning stage to evaluate the success of each project. Digital dashboards and real-time tracking tools can also be used to monitor performance efficiently. Companies are also encouraged to adopt third-party evaluations for unbiased assessments and to strengthen credibility with stakeholders and the public.
Documentation and Reporting
Proper documentation is essential for accountability and future planning. Companies must maintain detailed records of their CSR policy, project plans, budgets, approvals, implementation status, impact assessments, and financial statements. The Annual Report of the Board should include a comprehensive CSR section disclosing details such as the amount spent, projects undertaken, implementing agencies, geographical coverage, and reasons for unspent funds. The CSR report must be annexed to the Board’s report and filed in Form CSR-2 on the MCA portal. This ensures regulatory compliance and enhances the company’s reputation by showcasing its social commitments.
Impact Assessment
The Companies (CSR Policy) Amendment Rules, 2021, introduced the requirement for impact assessment for companies with an average CSR obligation of Rs. 10 crore or more in the three preceding financial years. Such companies must conduct impact assessments for CSR projects with outlays of Rs. 1 crore or more, having been completed for at least one year. The impact assessment must be conducted by an independent agency and should be disclosed in the Annual Report on CSR. It helps stakeholders understand the real outcomes of CSR interventions and guides companies in refining their CSR strategy.
Tax Implications of CSR Spending
One of the common concerns for companies undertaking CSR activities is the tax treatment of CSR expenditure. Under Section 135 of the Companies Act, 2013, CSR spending is mandatory for specified companies. However, under the Income Tax Act, 1961, CSR expenditure is not allowed as a deduction while computing taxable income. Section 37 of the Income Tax Act explicitly states that any expenditure incurred by an assessee for Corporate Social Responsibility shall not be deemed to be incurred for the business or profession and, therefore, shall not be allowed as a deduction.
Exceptions and Allowable Deductions
While general CSR expenses are not deductible, there are certain exceptions where companies can claim deductions under other provisions of the Income Tax Act. For instance, if the CSR activity involves contributions to specified funds such as the Prime Minister’s National Relief Fund, the Swachh Bharat Kosh, or the Clean Ganga Fund, companies can claim deductions under Section 80G of the Act. Similarly, if CSR activities involve expenditure under specific tax-deductible sections such as Section 35 for scientific research or rural development programs, those may be eligible for tax benefits. However, these deductions must be claimed based on the specific activity and applicable section rather than under the general provision of CSR expenditure.
GST Implications on CSR
Goods and Services Tax (GST) may also be applicable on CSR activities. If goods or services are provided free of cost as part of CSR, input tax credit (ITC) may not be available, as the ITC is generally allowed only when goods or services are used in the course or furtherance of business. The Central Board of Indirect Taxes and Customs (CBIC) has issued various circulars clarifying that ITC on CSR activities is not admissible in most cases unless they are directly related to the company’s business. Companies must consult tax professionals to analyze the nature of CSR activity and its GST impact to ensure compliance and avoid disputes.
CSR as an Investment in Brand Equity
While the tax laws do not permit the deduction of CSR expenses, companies still undertake these projects due to the long-term benefits they offer. Effective CSR enhances a company’s brand image, builds goodwill among stakeholders, improves employee satisfaction, and strengthens relationships with local communities. It positions the company as a socially responsible organization and adds intangible value, which contributes to brand equity. Many companies integrate CSR into their overall business strategy, viewing it not as a cost but as an investment in long-term stakeholder engagement and sustainable growth.
Legal Consequences for Non-Compliance
Non-compliance with CSR provisions attracts penalties under the Companies Act. If a company fails to spend the required amount on CSR or fails to transfer unspent amounts to designated funds or accounts within the prescribed timeline, the company and officers in default may be liable for penalties. As per recent amendments, unspent amounts related to ongoing projects must be transferred to a special Unspent CSR Account within 30 days of the financial year-end and utilized within three years. Failing that, the amount must be transferred to a fund specified under Schedule VII, such as the PM CARES Fund. For unspent amounts not related to ongoing projects, the company must transfer the amount to a Schedule VII fund within six months from the end of the financial year.
Role of the Board and CSR Committee
The CSR Committee plays a key role in planning, monitoring, and reviewing CSR activities. It is responsible for formulating the CSR policy, recommending projects and budgets, ensuring that the activities are aligned with Schedule VII of the Companies Act, and monitoring the implementation process. The Board of Directors must approve the CSR policy, ensure its disclosure on the company’s website, and ensure that CSR spending is by the approved policy. The Board is ultimately accountable for compliance with CSR provisions and must ensure that the CSR report is part of the Annual Report filed with the Registrar of Companies.
Practical Challenges in CSR Implementation
Despite the detailed framework under the Companies Act, 2013, companies face several practical challenges in the actual implementation of CSR activities. These challenges range from the identification of suitable projects and partners to ensuring sustainable impact and proper utilization of funds. One of the most significant difficulties is aligning the company’s CSR policy with the community’s actual needs while staying within the regulatory boundaries. Companies also struggle to find credible implementation agencies with a proven track record, which becomes even more difficult for smaller companies or those operating in remote areas. There is often a lack of internal capacity to design, execute, and monitor CSR initiatives effectively. Many companies rely heavily on third-party implementers, which can create issues of accountability and control. Moreover, measuring the actual impact of CSR initiatives remains a challenge, as many outcomes are intangible or manifest over a long period.
Common Issues in CSR Project Execution
Several recurring issues hamper the effective execution of CSR projects. These include a lack of community participation, which results in projects being misaligned with local needs. Administrative and bureaucratic hurdles often delay project approvals and fund disbursements. Inadequate baseline surveys or needs assessments lead to poorly designed interventions that fail to achieve intended results. Furthermore, projects may suffer due to inefficient monitoring systems, the absence of mid-course correction mechanisms, or weak governance structures. Companies sometimes also face difficulty in maintaining transparency regarding CSR spending, especially where multiple intermediaries are involved. Regulatory compliance may also become a hurdle if companies fail to maintain proper documentation or meet reporting obligations. This can result in scrutiny by auditors or government agencies, leading to reputational risks.
Role of Independent Agencies and NGOs
Independent agencies and non-governmental organizations (NGOs) play a crucial role in the execution of CSR programs. These entities bring on-the-ground experience, sectoral knowledge, and existing community linkages that companies may lack. NGOs help identify community needs, co-design interventions, and implement projects effectively. In some cases, they also assist in capacity building of local stakeholders and provide long-term support to beneficiaries. However, the selection of NGOs must be done cautiously. Companies should conduct thorough due diligence, including assessment of the NGO’s registration status under the Income Tax Act and Foreign Contribution Regulation Act, financial records, governance practices, and field experience. Long-term partnerships with reputed NGOs often lead to better outcomes, while ad hoc engagements can result in inefficiencies or fund misuse. It is also critical that NGOs and companies share common values and vision to ensure a seamless working relationship.
Importance of Baseline Surveys and Needs Assessments
A thorough baseline survey or needs assessment is essential before initiating any CSR project. This process helps understand the social, economic, and environmental context of the target community. Baseline data enables companies to identify priority areas and set measurable goals. Without a sound understanding of existing conditions, CSR efforts may end up being irrelevant or ineffective. Needs assessment involves consulting with local stakeholders, government officials, and community members to determine pressing issues that require intervention. Participatory methods like focus group discussions and interviews help collect reliable data. The insights gained from such studies inform project design, help in resource allocation, and provide a basis for future impact evaluation. Moreover, a documented needs assessment also supports compliance with legal requirements and helps defend the project in case of regulatory scrutiny.
Capacity Building and Employee Involvement
Another key aspect of successful CSR implementation is capacity building—both within the organization and among external stakeholders. Internally, companies must invest in training their CSR teams to understand legal obligations, develop project management skills, and improve stakeholder engagement. Creating dedicated CSR departments or appointing qualified CSR professionals enhances the quality of project planning and execution. Externally, capacity building of implementing agencies and community members ensures that CSR interventions are sustainable even after the exit of the funding company. Employee involvement is another important component. Encouraging volunteering and participation of employees in CSR projects helps build a sense of ownership and improves project effectiveness. Companies can organize employee engagement initiatives such as awareness drives, field visits, or skill-based volunteering, which also contribute to internal brand building and employee satisfaction.
CSR Project Monitoring Mechanisms
Monitoring is a crucial step in ensuring the success of CSR initiatives. Companies are required to track the progress of projects against planned objectives, timelines, and budgets. Monitoring enables early identification of implementation issues, ensures timely corrective actions, and guarantees effective utilization of funds. Monitoring mechanisms typically include progress reports, field visits, audits, and stakeholder consultations. Companies can use technology tools like Management Information Systems (MIS), mobile data collection apps, and dashboards to track real-time project status. Many companies also engage third-party evaluators to assess project outcomes independently. The monitoring data not only helps internal decision-making but also becomes a key input for CSR reporting and public disclosures. Inadequate or ineffective monitoring often results in poor project outcomes and failure to achieve statutory obligations, exposing companies to legal and reputational risks.
Impact Assessment and Reporting
Impact assessment is the process of evaluating the changes that occur as a result of CSR activities. It helps determine whether the interventions have brought meaningful improvements in the lives of beneficiaries. Impact assessment goes beyond monitoring as it focuses on long-term and sustainable changes rather than immediate outputs. Companies should conduct impact assessments at the end of major CSR projects, especially those involving large budgets or strategic importance. As per the CSR Rules, companies with an average CSR obligation of ten crore rupees or more are required to undertake an impact assessment through an independent agency. The assessment should cover both qualitative and quantitative aspects and include stakeholder feedback. Impact assessment reports serve as a learning tool for future projects, validate the effectiveness of interventions, and demonstrate accountability. Companies can use the insights to refine their CSR strategies and enhance stakeholder confidence.
Record-Keeping and Documentation
Proper record-keeping is essential to maintain transparency and compliance in CSR activities. Companies must maintain comprehensive documentation related to CSR policies, project approvals, agreements with implementation agencies, fund disbursements, progress reports, impact assessments, and meeting minutes of the CSR committee. These records are crucial during statutory audits or regulatory reviews. Maintaining documentation also supports internal decision-making and allows knowledge transfer across teams. Records should be organized systematically and preserved for at least eight financial years. Companies are also advised to adopt digital tools for secure storage and easy retrieval of CSR documents. Failure to maintain adequate records may result in adverse audit observations, penalties, or difficulty in substantiating compliance with legal provisions. Good documentation practices reflect professionalism and accountability and enhance the company’s credibility with stakeholders.
Disclosure and Transparency in CSR
Transparency is one of the guiding principles of CSR. Companies are required to disclose CSR-related information in their Board’s Report and on their official websites. Disclosures should include the CSR policy, composition of the CSR committee, details of approved projects, amount spent, and reasons for any unspent amount. These disclosures allow stakeholders, including shareholders, regulators, and the general public, to evaluate the company’s commitment to social responsibility. Transparent reporting builds trust and enhances the company’s brand value. Companies should ensure that CSR disclosures are factual, timely, and aligned with the data submitted to regulators. It is also advisable to publish a separate CSR Report or Sustainability Report for wider outreach. Third-party certifications and ratings can further enhance the credibility of CSR disclosures. Any attempt to overstate or misrepresent CSR efforts can lead to reputational damage and regulatory consequences.
Tax Implications of CSR Activities
CSR Expenses and Deductibility Under Income Tax Act
Section 37(1) of the Income Tax Act, 1961 states that any expenditure not being of a capital nature, laid out or expended wholly and exclusively for business or profession shall be allowed as a deduction while computing business income. However, Explanation 2 to this section, inserted by the Finance (No. 2) Act, 2014, clarifies that any expenditure incurred by an assessee on the activities relating to Corporate Social Responsibility referred to in section 135 of the Companies Act, 2013, shall not be deemed to be an expenditure incurred by the assessee for the business or profession. As a result, such expenses are not allowed as a deduction under this section.
This amendment ensures that while CSR expenditures are recognized for compliance under company law, they are not considered business expenses for tax deduction purposes. This serves to reinforce the intent that CSR is not a business strategy but a social obligation.
Exceptions to Non-Deductibility of CSR Expenditure
Despite the general disallowance under section 37(1), certain CSR expenses may be allowable under other provisions of the IncTaAct ifif they satisfy the conditions of those sections. For example:
- Section 30 to Section 36: If CSR expenditure falls within the scope of specific deductions allowed under these sections, it may still be deductible. For instance, contributions to certain research institutions or approved funds, or expenses like rent or insurance paid for assets used in CSR projects, may be claimed under these sections.
- Section 80G: Donations made to funds or institutions approved under section 80G are eligible for deduction, even if made as part of CSR obligations. Hence, if a company donates to an approved NGO or relief fund, it can claim a deduction under section 80G.
Thus, classification and documentation of CSR expenses play a key role in determining tax treatment.
GST Implications on CSR Activities
CSR activities may involve the supply of goods or services, which brings the applicability of Goods and Services Tax (GST) into consideration. The key considerations under GST are:
- Input Tax Credit (ITC): Generally, ITC is available on goods or services used in the course or furtherance of business. However, for CSR expenses, there is ambiguity regarding ITC eligibility, as they are not directly linked to business promotion or production.
- Judicial Interpretations: Some advance rulings have held that CSR expenditure is not incurred in the course or furtherance of business, hence ITC is not admissible. However, other rulings have allowed ITC where CSR expenses were considered obligatory under the Companies Act.
- Voluntary Donations and Supplies: Where goods are supplied free of cost as part of CSR, the transaction may still be liable to GST under deemed supply rules. Companies must evaluate GST compliance based on the nature of the CSR activity.
Due to varied interpretations, companies must evaluate each CSR transaction for GST liability and maintain adequate documentation.
Reporting and Tax Compliance Requirements
CSR reporting in financial statements is governed by the Companies Act, but for tax purposes, disclosure of CSR expenses is also required in income tax returns. Key compliance elements include:
- Auditor’s Report: Disclosure of CSR spend and its treatment in financial statements must be certified by auditors. It includes actual amounts spent, unspent balances, and reasons for shortfall i,,f any.
- Income Tax Return (ITR): In the ITR form, CSR expenditures are to be reported under “Schedule BP” (Business and Profession) and are specifically disallowed under section 37.
- Unspent Amounts: Any unspent CSR funds, particularly those related to ongoing projects, must be transferred to specified funds under Schedule VII or to a separate CSR account, as required under section 135 of the Companies Act.
Failure to comply with these provisions can attract penalties, disallowance of deductions, and scrutiny by tax authorities.
Transfer of Unspent CSR Funds and Tax Impact
Unspent CSR funds must be treated according to the nature of the project:
- Non-Ongoing Projects: Any unspent amount must be transferred to a fund specified in Schedule VII within six months of the end of the financial year.
- Ongoing Projects: Unspent amount should be transferred to a special CSR account within 30 days and must be spent within three financial years. If not utilized, it must be transferred to a Schedule VII fund within 30 days from the end of the third financial year.
These transfers do not attract tax deduction and are treated as application of income rather than expenses incurred in business operations.
Judicial Precedents on CSR Tax Matters
Various judicial pronouncements have interpreted the nature and taxability of CSR expenses. Some notable decisions include:
- National Aluminium Co. Ltd. v. CIT: It was held that mandatory CSR expenses are not deductible under section 37, aligning with Explanation 2.
- Advance Ruling in Dwarikesh Sugar Industries Ltd.: The ruling allowed ITC on CSR expenses, considering them as part of the business obligation under law.
- Chambal Fertilizers and Chemicals Ltd. v. JCIT: This ruling emphasized that donations to funds not notified under section 80G, even if part of CSR, are not deductible.
These judgments indicate that tax implications depend heavily on the facts of the case, the nature of the CSR activity, and applicable provisions.
Conclusion
CSR compliance is a multifaceted obligation involving planning, execution, monitoring, reporting, and tax evaluation. While the Companies Act lays the foundation for CSR responsibility, income tax and GST laws influence how these obligations are treated for financial and tax reporting. Corporations must align their CSR strategies with both regulatory mandates and social impact goals. A well-documented and transparent CSR framework not only fulfills legal requirements but also enhances corporate reputation, stakeholder trust, and long-term value creation. Understanding the nuances of tax treatment, especially under income tax and GST laws, enables companies to structure their CSR initiatives effectively while remaining compliant with all statutory obligations.