Corporate social responsibility (CSR) is one of the most important activities undertaken by companies. It involves the voluntary contributions made by a company towards society for its overall development. Under the Goods and Services Tax (GST) regime in India, there is confusion over the eligibility of Input Tax Credit (ITC) on CSR expenses. In this article, we will explore the eligibility of ITC on CSR expenses under GST and clear up any confusion surrounding this issue.
Before delving into the eligibility criteria for ITC on CSR expenses, it is necessary to understand what CSR expenses are. CSR expenses refer to the expenses incurred by a company towards its corporate social responsibility activities. These activities can range from providing education and healthcare to underprivileged sections of society to contributing towards environmental conservation.
Under the GST regime, companies are eligible to claim ITC on goods and services purchased for their business activities. However, there is confusion over whether ITC can be claimed on CSR expenses, as these expenses are not directly related to the company's business activities.
According to the GST law, ITC can be claimed only on the goods and services acquired for the purpose of business activities. As CSR activities are not directly related to the business activities of the company, it is generally believed that ITC cannot be claimed on the expenses incurred towards these activities.
Recently, the Gujarat Authority of Advance Ruling (AAR) provided clarity on the eligibility of ITC on CSR expenses under GST. The AAR ruled that ITC can be claimed on the expenses incurred towards CSR activities only if these activities are directly related to the business activities of the company.
The AAR also stated that ITC cannot be claimed on expenses incurred towards CSR activities that are not directly related to the business activities of the company. For example, if a company operates in the healthcare sector and incurs expenses towards providing medical facilities to underprivileged sections of society, ITC can be claimed on these expenses as they are directly related to the company's business activities. However, if the same company incurs expenses towards environmental conservation activities, ITC cannot be claimed on these expenses as they are not directly related to the company's business activities.
It is important for companies to understand the eligibility criteria for claiming ITC on CSR expenses under GST. While there is confusion surrounding this issue, the recent ruling by the Gujarat AAR has provided much-needed clarity on this matter. Companies should ensure that they incur expenses towards CSR activities that are directly related to their business activities in order to claim ITC on these expenses.
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