Budget 2023: No Input Tax Credit Benefit Against CSR Activities
Companies would now have to bear the full cost of their social welfare activities, according to the Finance Bill, 2023.
Companies would no longer be able to claim input tax credit for goods and services purchased for the purpose of fulfilling their corporate social responsibility obligations, according to the Finance Bill, 2023.
The proposal has been introduced as a result of conflicting rulings in which credit was allowed in some cases but denied in others, experts say. While the Authority for Advance Rulings in Mumbai and Karnataka have allowed credit against CSR activities, those in Uttar Pradesh and Kerala have denied it.
The denial, according to experts, was on grounds that CSR expenses do not fit the definition of a business expense, and tax credit can only be claimed for expenses made in furtherance of business.
According to the provisions of the Companies Act, 2013, every company with a specified net worth, turnover, or net profit is mandated to spend 2% of its net profit for the last three years towards social causes.
The amendment would settle the ambiguity created by advance rulings, according to Abhishek Jain, partner at KPMG India.
While this would be slightly disappointing for the industry, this change would clear the air on the issue, which was ambiguous and was subject to contrary advance rulings.Abhishek Jain, Partner, KPMG India
This move would most likely increase the cost of businesses mandated to make CSR expenditure under the Companies Act, said MS Mani, partner at Deloitte India.
The overall CSR costs for corporates, who are covered by Section 135 of the Companies Act, would increase now, despite the CSR activity remaining the same. The denial of input tax credit on CSR activities imposes an additional cost, despite the same being both a statutory requirement and a social necessity.MS Mani, Partner, Deloitte India
Other changes to the indirect tax regime include decriminalisation of several offenses under the Central Goods and Services Act and increase in threshold of prosecution from Rs 1 crore to Rs 2 crore, except for the offense of fake invoices. This decision was approved by the GST Council in its December meeting.
New provisions are introduced in the GST Act as well to enable sharing of GST portal data with other government agencies.
The move is indicative of government’s continued focus on strict compliance monitoring and inter-departmental data sharing, according to Saurabh Agarwal, partner at EY India.