GST - Articles

Amendment to ITC Availment for CSR Expenses under the CGST Act, 2017

The Finance Act 2023 has brought in several amendments to the Central Goods and Services Tax Act, 2017 (CGST Act). One of the notable proposals is the insertion of clause (fa) in Section 17(5) of the CGST Act, which restricts the Input Tax Credit (ITC) on goods or services received by a taxable person for activities relating to his obligations under Corporate Social Responsibility (CSR) as per Section 135 of the Companies Act, 2013.

The relevant extract of the Finance Act 2023 for the new clause (fa) in Section 17(5) of the CGST Act is as follows:

"(fa) goods or services or both received by a taxable person, which are used or intended to be used for activities relating to his obligations under corporate social responsibility referred to in section 135 of the Companies Act, 2013;"

As per this amendment, companies will no longer be able to claim ITC on goods or services used for fulfilling their CSR obligations. This means that companies will not be able to claim credit for the GST paid on goods or services used for CSR activities, and the entire cost of such goods or services will be borne by the company.

This amendment is expected to impact companies that are required to spend a certain percentage of their profits on CSR activities as per the Companies Act, 2013. Under the Act, companies with a certain level of net worth, turnover or profits are required to spend at least 2% of their average net profits of the preceding three years on CSR activities. The eligible CSR activities are listed in Schedule VII of the Act.

The amendment may also affect companies that are voluntarily engaged in CSR activities. These companies may need to review their budgets and expenditure on CSR activities to ensure that they are not claiming ITC on goods or services used for such activities.

It's important to note that the amendment only restricts the availment of ITC on CSR expenses and not the actual expenditure on CSR activities. Companies will still need to fulfill their CSR obligations under the Companies Act, 2013, and any expenditure on CSR activities will continue to be treated as a deductible expense under the Income Tax Act, 1961.

In conclusion, the amendment to the CGST Act, 2017 restricts the ITC availment on goods or services used for fulfilling CSR obligations. Companies will need to factor in this amendment while budgeting and planning for their CSR activities. They may need to review their expenses on CSR activities and ensure that they are not claiming ITC on goods or services used for such activities.

It's important to consult a tax expert or refer to the latest GST notifications to stay updated on any changes related to ITC availment for CSR expenses.