Decoding CSR from Tax perspective

2. April 2014 Copyright - Anil Chawla Law Associates LLP 2
A. Meaning of CSR
B. Applicability & Spending
C. Constitution of CSR Committee
D. Implementation of CSR Strategy
E. CSR Activities
F. Mode of Carrying CSR Activities
G. Reporting Requirements
H. Analysis of CSR Spending
I. Penalties
J. Brainstorming Questions

3. 3

4. A1. Companies Responsible for CSR
• Net Worth of Rs. 500 Crores (Rs. Five Billion) or more OR
• Turnover of Rs. 1000 Crores (Rs. Ten Billion) or more OR
• Net Profit of Rs. 5 Crores (Rs. Fifty Million) or more
April 2014
Copyright - Anil Chawla Law Associates
LLP
4
Every company (whether private or public) with:CRITERIA
Net Worth
≥ Rs.
500 Cr.
Turnover
≥ Rs.
1,000 Cr
Net Profit
≥ Rs. 5
Cr.

5. 5
 Every company that satisfies prescribed threshold is required to spend
at least 2% of its average net profit of 3 preceding financial years on
specified CSR activities
 Section 3(d) of the proposed CSR Rules, defines Net Profit for
domestic company as: “Net profit before tax as per books of
accounts and shall not include profits arising from branches
outside India‘
“Net profit” for a foreign company means the net profit as per profit
and loss account prepared in terms of section 381(a)(1) read with
section 198 of the Companies Act, 2013.
 The ‘average net profit’ shall be calculated in accordance with
section 198 [i.e., calculation of net profit prescribed for the purpose of
determining the maximum managerial remuneration]
AMOUNT TO BE SPENT ON CSR ACTIVITIES

6. COMPUTATION OF PROFIT AS PER SEC 198
6
+/- Particulars Amount
Net profit
after tax
XX
+ Allowed
Credits
XX
- Credits
Disallowed
X
+ Expenses
Allowed
X
- Expenses
Disallowed
XX
Allowed
Credits
Expenses
allowed
Expenses
Disallowed
Credit
Disallowed
Profit on sale of immovable
property ( Original Cost – WDV )
Premium on shares or debentures ,
Profit on sale of forfeited shares ,
Surplus in P&L on measurement of
asset or liability at fair value
Usual Working Charges , Director’s
Remuneration, Bonus or
Commission paid to Staff , Interest
on Loans, Depreciation.
Income Tax ,Compensations,
damages or payments made
voluntarily ,Capital Loss on sale of
undertaking or part thereof

7. CONSTITUTION OF CSR COMMITTEE
PRIVATE
COMPANY
PUBLIC
COMPANY
 Composition of CSR
committee should
be 3 or more
directors.
 Out of which at
least 1 director
shall be an
independent
dIrector
 Composition of CSR
committee should be 3
or more directors;
 If there is no
independent director,
then any 3 directors
may be members of CSR
committee.
Foreign
COMPANY
 Consist of atleast 2
Person
 Out of which 1 shall
be as specified u/s
380(d)(1)
 Other nominated by
foreign Company

8. CSR COMMITTEE ROLE OF THE BOARD
Formulate & Recommend a
CSR Policy
Recommend CSR Initiatives
Monitor CSR expenditure
Form CSR Committee
Approve CSR Policy
Ensure Implementation
Disclose CSR Policy on the
company’s website
Disclose reasons for not
spending amount

9. STAGES EXPECTED OUTPUT
COMPLIANCE
CHECK
STRUCTURING
OPTIONS
CSR POLICY
DRAFTING
Program
implementation &
monitoring
Review &
Reporting
 COMPLIANT LIST OF CSR PROJECT IDENTIFIED
 CSR SPENDS IDENTIFIED
 IMPLEMENTATION STRUCTURE STREAMLINED
 NEW AREAS IDENTIFIED
 CSR POLICY DRAFTED
 TAX IMPLICATION IDENTIFIED
 CREATING SOPS
 REALIBLE DATA
 IMPACT ASSESSMENT REPORT
 ANNUAL CSR REPORT

10. Eradication
of Hunger
& Poverty
Protection of
National
Heritage, Art
& Culture
Environment
Sustainability
Benefit of
Armed
Forces
Veterans
Training to
Promote
Rural Sport
Contribution
to PM
National
Relief Fund
Rural
Development
Project
Gender
Equality &
Women
Empowerment
Swachh
Bharat
Abhiyan

11. Restriction on Activities
Activities not mentioned in Company’s CSR Policy – Rule 4(1)
Activities conducted in normal course of business – Rule 4(1)
Activities conducted outside India – Rule 4 (4)
Activities benefitting only employees or families not allowed –
Rule 4 (5)
Building CSR capabilities of employees beyond 5% of CSR
expenditure – Rule 4(6)
Contribution to political party – Rule 4(7)

12. Mode of Carrying CSR
Activities
Trust / Society / section
8 company set up by
the company or its
subsidiary / holding /
associate company
Independent entity
having three years
track record
Collaboration
with other
companies

13. ALTERNATE 1 ALTERNATE 2 ALTERNATE 3
COMPANY 1 COMPANY 2 COMPANY 1 COMPANY 2
In-house
CSR Activity
Govt Schemes
/ Independent
NGOs
Not For-profit
arm of the
group
CSR
ACTIVITIES
CARRIED
OUT BY
EMPLOYEES
Donation to
government
schemes /
independent
NGOs
Corporate group
forms separate not-
for Profit arm to
carry out CSR
activities

14.  Directors’ Report to include contents of CSR Policy {Sec.
135(4)(a)}
Directors’ Report to General Meeting to include a report about
CSR initiatives as per format in Rule 8 { CSR POLICY RULES
2014 }
Company website to disclose company’s CSR Policy as per Rule
9 { CSR POLICY RULES 2014 }
If there is a failure to spend CSR amount, Board shall in its
report specify the reasons – Sec. 135(5)

15. 1 2 3 4 5 6 7 8
SNO
.
CSR
PROJECT
OR
ACTIVITY
IDENTIFI
-ED
SECTOR IN
WHICH THE
PROJECT IS
COVERED
PROJECT OR
PROGRAMME
1) LOCAL
AREA
2) SPECIFY
THE STATE
AND
DISTRICT
AMOUNT
OUTLAY
PROJECT
OR
PROGRAM
WISE
AMOUNT
SPENT ON
THE
PROJECTS
OR
PROGRAM
TOTAL
EXPEN-
DITURE
UPTO
DATE
AMOUNTS
SPENT :
DIRECT OR
THROUGH
IMPLEM-
ENTING
AGENCY
1
2

16. PENALTY ON NON
REPORTING
COMPANY OFFICER IN
DEFAULT
MAX FINE - 25 LACS
MIN FINE - 0.50 LACS
IMPRISONMENT- UPTO 3
YEARS
FINE 50,000 TO 5 LACS

18. Section Deduction available for Deduction (AMOUNT)
35(1)(ii) Sum paid to research association university, college
or other institution to be used for scientific research
1.75 TIMES OF SUM
35(1)(iia) Sum paid to a scientific R&D company for scientific
research.
1.25 TIMES OF SUM
35(1)(iii) Sum paid to research association, university college
or other institution to be used in social science.
1.25 TIMES OF SUM
35(2AA) Any sum paid to National Laboratory or a University
or IIT or a specified person with a direction that such
sum is to be used for scientific research
2 TIMES OF SUM
35CCC Any expenditure on agricultural extension project
notified by CBDT
1.5 TIMES OF SUM
35CCD Any expenditure (not being expenditure in the nature
of cost of any land or building) on any skill
development project notified by CBDT
1.5 TIMES OF SUM
35AC Sum paid to public sector company/local authority/
Etc for carrying out any eligible notified project for
promoting social and economic welfare of the public
1TIME OF SUM
Section Deduction available for Deduction (AMOUNT)
35(1)(ii) Sum paid to research association university, college
or other institution to be used for scientific research
1.75 TIMES OF SUM
35(1)(iia) Sum paid to a scientific R&D company for scientific
research.
1.25 TIMES OF SUM
35(1)(iii) Sum paid to research association, university college
or other institution to be used in social science.
1.25 TIMES OF SUM
35(2AA) Any sum paid to National Laboratory or a University
or IIT or a specified person with a direction that such
sum is to be used for scientific research
2 TIMES OF SUM
35CCC Any expenditure on agricultural extension project
notified by CBDT
1.5 TIMES OF SUM
35CCD Any expenditure (not being expenditure in the nature
of cost of any land or building) on any skill
development project notified by CBDT
1.5 TIMES OF SUM
35AC Sum paid to public sector company/local authority/
Etc for carrying out any eligible notified project for
promoting social and economic welfare of the public
1TIME OF SUM

19. COMPANY SHOULD
PROVIDE DONATIONS
TO TRUST WHOSE ACTIVITIES
ARE ALIGNED TO SOCIAL
ACTIVIES CONTAINED IN
SCHEDULE VII OF CA 2013

21. NO DEDUCTIONS U/S 37 OF IT ACT
1961
CSR RULES CEARLY DEFINES ACTIVITIES
WHICH SHALL NOT BE CONDUCTED IN
REGULAR COURSE OF BUSINESS.

23. S.No. Name of
Country
Whether
CSR spend / reporting mandatory
1 U.K Voluntary guidelines
2 U.S.A Voluntary guidelines
3 Germany Voluntary guidelines
4 France Mandatory reporting for listed companies in Annual reports
5 Denmark Investors and state owned companies to include information
on CSR in their annual Financial reports
6 Sweden Mandatory reporting by state - owned companies
7 Indonesia Natural Resource based companies must allocate budgets for
CSR programs and the programs must be run according to
government regulations
8 Malaysia Compulsory for companies listed on Bursa Malaysia to
disclose their CSR activities or practices

25.  CSR applicable on group companies or individual holding/Subsidiary
Company ?
 Provision of CSR applicable on Section 8 Companies ?
 Donation of money to a trust by a company be treated as CSR
Expenditure?
 In case multi-locational operations, What shall be area of “preferential
locations” ?
 Salary paid to staff for CSR activities included in CSR Activities?
 CSR provision applicable on Foreign Company having only Project office
 One off event like Marathon , Advertisement campaign be considered as
CSR ?
 Expenditure made by Foreign Holding eligible as expense for Indian
Subsidiary co. ?