The finance ministry is seriously considering a proposal for allowing tax rebates to corporates on the mandatory expenditure they have to make on social welfare schemes as part of their corporate social responsibility (CSR).
According to sources, while earlier the ministry opposed the idea, there appears to be some rethink on the subject and the tax concession may form part of the proposals to be announced in the Budget .
The corporate affairs ministry is in favour of tax benefits for social welfare spending. The new Companies Act requires entities with sizeable business to shell out, at least, two per cent of their three- year average annual net profit towards CSR. Industry has also been seeking tax benefits on spending towards CSR which would also serve as incentive to carry out such work. However, the finance ministry was not in favour of giving tax benefits to businesses.
In the new revised draft of Direct Taxes Code (DTC) Bill, the finance ministry, then headed by P. Chidambaram, had observed that allowing deduction for CSR expenditure would imply the government would be contributing one- third of this expenditure as revenue foregone.
The Parliamentary Standing Committee on Finance, headed by Bharatiya Janata Party leader Yashwant Sinha in the previous Lok Sabha, had in its report on the DTC Bill recommended tax benefit for CSR expenditure in backward regions and districts, but the finance ministry was not bound by its recommendations.
Under the new Companies Act, all firms having a net worth of, at least, Rs 500 crore or a minimum turnover of Rs 1,000 crore or a net profit of Rs 5 crore are required to allocate funds for CSR. Going by the rules, notified by the corporate affairs ministry, there is a wide range of activities that come under the CSR ambit. These include livelihood enhancement and rural development projects, working towards protection of national heritage, art and culture, setting up public libraries, promotion and development of traditional arts and handicrafts. Various activities aimed at reducing inequalities faced by socially and economically backward groups have been included in CSR activities.
Going by estimates, the total spending on such activities could turn out to be around Rs 15,000- Rs 20,000 crore annually. Eligible companies have to set up a CSR committee comprising, at least, three directors, including an independent director, as members.
Companies which fail to spend the requisite money have to disclose the reasons for not doing so.
Courtesy: Mail Today