Eligibility of ITC on CSR Expenses Under GST

The Corporate Social Responsibility (CSR) is a practice that companies follow to ensure that they contribute to society's well-being. The concept of CSR is not new, and companies have been contributing to society for decades. The Indian government made it mandatory for companies to spend 2% of their net profit on CSR activities from 2014 onwards. The introduction of the Goods and Services Tax (GST) in 2017 brought several changes to the taxation system of the country, and many businesses are still trying to understand the impact of GST on various aspects of their business, including CSR expenses. In this article, we will discuss the eligibility of Input Tax Credit (ITC) on CSR expenses under GST.

What are CSR expenses?

CSR expenses are expenses incurred by companies to contribute towards the social and economic development of the country. The Companies Act, 2013, defines CSR expenses as expenses incurred by companies on activities such as education, health, poverty eradication, environment sustainability, etc. The companies are required to spend 2% of their net profit on CSR activities.

What is Input Tax Credit (ITC)?

Input Tax Credit (ITC) is a mechanism that allows taxpayers to set off the tax they have paid on inputs against the tax they have to pay on the output. In simple terms, it allows a taxpayer to reduce the tax liability by the amount of tax paid on inputs. ITC is available only when the goods or services are used for business purposes.

Eligibility of ITC on CSR expenses under GST

ITC is not available on all expenses, and there are certain conditions that need to be met before a taxpayer can claim ITC. The conditions for claiming ITC on CSR expenses under GST are as follows:

The CSR activities should fall under Schedule VII of the Companies Act, 2013.
The CSR activities should be in the course or furtherance of business.
The expenses incurred on CSR activities should be in compliance with the GST law.

It is essential to note that ITC cannot be claimed on expenses that are not related to business activities. For example, if a company donates money to a charitable organization, it cannot claim ITC on that expense under GST, as it is not in the course or furtherance of business. However, if a company sponsors a marathon event to promote its product, it can claim ITC on the expenses incurred for sponsoring the event.

Conclusion

The eligibility of ITC on CSR expenses under GST is subject to various conditions, and businesses need to ensure that they comply with all the conditions to claim ITC. The companies should keep proper records of the expenses incurred on CSR activities to claim ITC under GST. It is important to note that the ITC on CSR expenses should be claimed in the same financial year in which the expenses were incurred.