Finance ministry against tax sops for CSR in backward regions

The finance ministry is not in favour of extending tax benefits to businesses for their social welfare spending in backward regions contrary to the recommendations made by a parliamentary panel.

The finance ministry, while unveiling the draft direct taxes code (DTC) bill last week, said that CSR spend in backward regions cannot be given tax exemption.

The parliamentary standing committee on finance, headed by BJP leader Yashwant Sinha, in its report on DTC bill, had recommended tax benefit for CSR spending in backward regions and districts.

In the revised DTC bill, the finance ministry has observed that allowing deduction for CSR expenditure would imply that the government would be contributing one third of this expenditure, which is the revenue foregone by it.

Effective 1 April, companies with sizeable business are required to shell out a minimum 2 per cent of their three-year average annual net profit towards corporate social responsibility (CSR) activities.

Unveiling the interim budget for the 2014-15 financial year in Parliament, finance minister P Chidambaram had appealed to all political parties "to resolve to pass" the DTC along with GST.

Industry has been seeking tax benefits for CSR activities as a kind of incentive to carry out such works. In this regard, a proposal from the corporate affairs ministry is pending with the finance ministry, sources said.

"The CSR expenditure cannot be allowed as a business deduction as it is an application of income. Allowing deduction for CSR expenditure would imply that the government would be contributing one third of this expenditure as revenue foregone," the draft DTC bill said.

The final decision on providing some kind of tax benefits for CSR activities under the new companies law would be taken by the next finance minister.

Under the Companies Act, 2013, firms having a net worth of at least Rs500 crore or a minimum turnover of Rs1,000 crore or a net profit of Rs5 crore are required to make CSR spend.