GST on CSR Activities I India CSR Largest Network

By CA S K Mishra

India is a country of myriad contradictions. On the one hand, it has grown to be one of the largest economies in the world, and an increasingly important player in the emerging global order, on the other hand, it is still home to the largest number of people living in absolute poverty and the largest number of undernourished children. There are uneven distribution of the benefits of growth which is probably the root cause of all social unrest.

Introduction to CSR Mandate

The Companies Act, 2013 has introduced the idea of CSR to the forefront and through its disclose-or-explain mandate, is promoting greater transparency & disclosure and Companies are spending more on CSR activities.

Companies (Corporate Social Responsibility Policy) Rules 2014 (CSR Rules 2014) has come into effect w.e.f. 1^st April 2014.

Implementation Through CSR Rules 2014

The term CSR has been defined under the CSR Rules which includes but is not limited to:

Projects or programs relating to activities specified in the Schedule VII; or
Projects or programs relating to activities undertaken by the Board in pursuance of recommendations of the CSR Committee as per the declared CSR policy subject to the condition that such policy covers subjects enumerated in the Schedule.

Definition and Scope of CSR

Flexibility has been given to the companies by allowing them to choose their preferred CSR engagements that are in conformity with the CSR policy

Sec 135 of Companies Act, 2013 provides the threshold limit for applicability of the CSR to a Company i.e.

(a) Net Worth of the Company to be Rs.500 Crores or more

(b) Turnover of the Company to be Rs.1000 Crores or more

Every qualifying company require to spend at least 2% of its average net profit for the immediately preceding 3 financial years on CSR activities.

Further as per the CSR Rules, the provisions of CSR are not only applicable to Indian Companies, but also applicable to branch and project offices of a foreign company in India.

Applicability of Goods & Service Tax (GST) on CSR Activities

Goods & Service Tax (GST), India’s most ambitious Indirect tax reform has been rolled out from 1^st July 2017. It has subsumed multiple Indirect taxes levied by both Central Government and State Governments, like – Excise duty, Service tax, VAT,CST, Luxury tax, Entertainment tax, entry tax etc.

Social Infrastructure and Basic Amenities

Building the Social infrastructures, providing basic amenities to the poor, improving sanitation and health care facilities and providing education etc. is the joint responsibilities of Governments and Corporate.

Exemption of CSR-related Services under GST

Companies Act, 2013 has make it compulsory for Corporate fulfilling specified criteria to spend at least 2% of their average net profit for the period immediately preceding three financial years on CSR activities, but the Govt. has given no specific exemption from levy of GST on expenditure incurred on CSR activities.

It is pertinent to mention that the CSR activities undertaken by Corporate are mostly in the nature of Works contract service/pure service which attract GST of 18%.

It means out of the total fund earmarked for CSR activities, roughly 1/3^rd will go to Government exchequer in the form of GST while 2/3^rd will be actually spend on CSR activities, which may discourage Corporate from spending more on CSR activities.

It sound completely un-reasonable that Government is even trying to fill its treasury by way of levying GST on CSR activities twice i.e. once during purchase of input and again during execution of work by using said input, which is contrary to the principle of social justice.

The GST Council has so far notify 87 types/nature of services which are exempted from GST (i.e. Nil rated services). There are only four Services which is covered under CSR activities & find mentioned in said exemption list i.e. Sl No.54: Service relating to cultivation of Plant, Sl No.56: Services by way of sponsorship of sporting events, Sl No. 66: Educational service & Sl No. 79: Services by way of public conveniences such as provision of facilities of bathroom, washrooms, lavatories, urinal or toilets.

Besides these none other CSR activities are appears to be covered under the list of services which are exempted from the ambit of GST.

The GST Council must revisit the exemption list (Nil rated Services) and should incorporate more services which qualify under CSR activities in the GST exemption list to encourage Corporates for spending in CSR activities.