1. Corporate Social Responsibility CA Sameer Gogia

2. 2 CSR under the Companies Act 2013 Applicable on? Criteria?How much? All companies including a holding or subsidiary company in India Branch or project offices of foreign companies Net worth of INR 5 billion or more Turnover of INR 10 billion or more Net profit of INR 50 million or more At least 2% of the average net profit of the company in the immediately three preceding financial years

3. 3 Company shall spend, In every FY at least 2% of the average net profit made during the 3 immediately preceding FY CSR expenditure Preference shall be given to local area around it where it operates Includes contribution to corpus, or expenditure on projects related to CSR activities approved by BOD Does not include any expenditure on an item, not in line with activities covered under Schedule VII Companies may build CSR capacities of their own personnel as well as of outside implementing agencies through institutions with track record of three FY, but such expenditure shall not exceed 5% of the total CSR expenditure of the Company in one FY

4. 4 CSR activities CSR Promotion of gender equality/empowering women Promotion of education including employment enhancing vocational skills Eradicating hunger, poverty and malnutrition Ensuring environmental sustainability Training to promote sports Measures for benefit of armed forces veterans, war widows and dependents Funds provided to technology incubators with academic institutions Protecting national heritage, art and culture Contribution to PM National Relief Fund/ any specified fund Rural development / slum development projects Measures for benefit of armed forces veterans, war widows and dependents Funds provided to technology incubators with academic institutions Protecting national heritage, art and culture Contribution to PM National Relief Fund/ any specified fund Contribution to Swatch Bharat Kosh Contribution to Clean Ganga Kosh

5. 5 CSR Compliance Responsibilities of Board CSR Committee Shall * Requirement of independent director relaxed in final CSR rules for unlisted companies and private companies Constitution of CSR Committee of the Board (3 or more directors, having atv least 1 independent director*) Formulate and recommend CSR policy (preference to be given to local area) Recommend CSR activities and expenditure on the same Monitor CSR policy from time to time Disclose composition of CSR Committee Approve CSR policy and report Ensure CSR activities are undertaken by company Ensure spending on CSR activities and reporting of non- compliance Board has to disclose in Director Report. Failure to report would attract penalty on the company of maximum INR 25 lakhs and probable imprisonment of officer which may extend to 3 years

6. Chronological events I 6 DateReference 10 July 2014Union Budget 2014. Income tax Act,1961 amended to include an explanation to section 37 (1) Explanation to section 37 (1) “for the purposes of sub- section (1) of section 37 any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to have been incurred for the purpose of business and hence shall not be allowed as deduction under said section 37 18 June 2014CBDT Issues Circular No. 21/2014 Stress for liberal interpretation and Research and Studies in the areas specified in Schedule VII for example research in health care, education, etc. shall qualify as CSR expenditure under Schedule VII of the Companies Ac 24 October 2014 Notification No. [F.NO.1/18/2013-CL-V] issued by Ministry of Corporate Affairs Central Government notifies Swach Bharat Kosh and Clean Ganga Fund under CSR

7. 7 Chronological events DateReference 21 January 2015 Circular No.1/2015 [F.No.142/13/2014-tpl], Explanation to section 37 (1) “for the purposes of sub- section (1) of section 37 any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to have been incurred for the purpose of business and hence shall not be allowed as deduction under said section 37”. Clarity on : that the CSR expenditure which is of the nature described in section 30 to section 36 of the Income-tax Act shall be allowed as deduction under those sections subject to fulfillment of conditions, if any, specified therein, applicable 1 April 2015. Union Budget 2015 To be enactedIt is proposed to amend the section 135 of the companies Act to include contribution towards swatch Bharat kosh and clean Ganga kosh as allowable CSR activity

8. 8 Clarity on Swatch Bharat and Clean Ganga 8 Section 80G Donations made to Swachh Bharat Kosh and Clean Ganga Fund will be eligible for 100% deduction from total income. ‒ Effective from FY 2014-15 ‒ Other than CSR expenditure Section 10(23C) Income of Swachh Bharat Kosh and Clean Ganga Fund will be exempt under section 10(23C) ‒ Effective from FY 2014-15

9. 9 Mapping of CSR activities Schedule VII of Companies Act Section under IT Act Eradicating hunger, poverty and malnutrition 35AC Promotion of education including employment enhancing vocational skills 35CCD / 35CCC Promotion of gender equality/empowering women 35AC Ensuring environmental sustainability 35CCC Protecting national heritage, art and culture 35 AC read with rule 11K [ 80G (2)(b)] Measures for benefit of armed forces veterans, war widows and dependents Section 80G(2)(a)(i) and 80G(2)(a)(iii)(h)(c ) *35CCA includes payment of any sum to a notified rural development fund or the National Urban Poverty Eradication fund

10. 10 Mapping of CSR activities Schedule VII of Companies Act Section under IT Act Activities concerning Sports- Training to promote rural sports,nationally recognized sports, Paralympics sports and Olympic sports 35AC read with Rule 11K Contribution to PM National Relief Fund/ any specified fund 80G Funds provided to technology incubators with academic institutions 35(2AA) and section 80G (2) Rural development / slum development projects 35CCA* / 35AC/ 35CCC/ 35CCD

11. 11 Income tax benefits Entity to be registered under section 35(1)(ii) Corporate taxpayer Entity registered under section 35(1)(ii) CSR scheme Entity engaged, among others, in scientific research activities, is registered under section 80G of the ITA and carrying out specified CSR activities Entity to be registered under section 35(1)(ii) Quantum of deduction should encourage more contribution by corporates Payment by corporate taxpayer to such entity should qualify for activities specified in Schedule VII to Companies Act, 2013 (Refer Annexure 1) Deduction of 175% of donation from the taxable income : Contribution / donation ParticularsAmount Donation made100100.00 Deduction from total income50175.00 Tax benefit (~33.99% of 50/175.00 respectively) 16.99559.482 Additional deduction of 125%

12. CSR activity as per section 135 As per section 30- 36 of the Act or 80G certificate Eligible for tax deduction CSR Activities as per companies Act Activities mentioned under section 30-36 of the Act or under 80G

13. 13 Tax issues

14. 14 Tax issues

15. 15 Tax issues

16. 16 Tax issues

17. 17 Tax issues on CSR Statutory/ compulsory contribution would not qualify as CSR Carryforward of the surplus expenses Contributions in kind such as donation of books, land, sports items, computers for education etc. whether monitory value would qualify for the CSR activity Applicability of the transfer pricing provisions to CSR activities

18. CSR Expenditure on the basis of Judicial Precedent Funds provided for establishing drinking water facilities and providing aid to school meant for residents of the locality in which the taxpayer operated CIT v. Madras Refinery Ltd. [266 ITR 170](Mad) Expenditure on community assistance programmes and welfare measures undertaken in the vicinity of taxpayer’s manufacturing unit CIT v. Madura Coats Ltd. [24 DTR 24](Mad) Installation of traffic lights in the vicinity of taxpayer’s office to improve traffic situation, serving dual purpose of benefitting the employees as also social commitment 3. Trips to Bhuj and Jamnagar post earthquake for relief work Infosys Technologies v. JCIT [109 TTJ 631](Bang) 18

19. CSR Expenditure on the basis of Judicial Precedent Trips to Bhuj and Jamnagar post earthquake for relief work Jindal Steel and Power Ltd. [16 SOT 509](Delhi) Construction of hockey stadium for use of local residents 5. ITO v. VeluManickam Lodge (123 ITD 25)(Chennai) Sponsorship of sports tournaments bearing the sponsor’s name on banners and association with the trophy CIT v. Lake Palace Hotels & Motels (P) Ltd. [293 ITR 281](Raj) Contributions made by Pharma company to health care society and science foundation allowed as it would bring Goodwill to the assessee ACIT v. Ranbaxy Labs Ltd. (7 ITR (Trib) 161](Delhi) CSR – Opportunities 19

20. Thank You