Business & Investment

New CSR System – Is It Charity or Tax Withholding?

Apart from imposing awkward legal obligations on the company, the new CSR system provides for severe fines for non-compliance with CSR obligations. Under Section 135 (7), the company will be subject to severe penalties and all officers will be the default. Although Section 135 (7) is “decriminalized,” the amount of “penalties” has not been significantly reduced, which is one of the few provisions of the law.

During the eight years, it deviated significantly from the original purpose of CSR, which was envisioned to encourage corporate philanthropy. During Congress’s debate on the company bill, the then Minister of Internal Affairs and Communications gave Congress a definitive guarantee that CSR spending was voluntary. With the notification of the new CSR system, CSR obligations have become similar to the additional tax obligations imposed on businesses.

It is severely unfair to a company to require a company to spend 2% of its net profit on CSR, but not to allow tax deductions for such legitimate spending. This is especially true if such expenditures are available as tax deductions under various provisions of the previous Income Tax Act. Introduction of Article 135. CSR obligations apply only if you do business through a company registered under the law. Other forms of business organizations, such as partnerships, LLPs, and sole proprietors, do not have to fulfill this obligation, even if they are profitable. Some may argue that this is arbitrary and irrational. If we challenge the constitutional validity of Articles 14 and 19 (1) (g) of the Constitution, it is doubtful that this provision will pass the judicial review test.

Note:

[1] Note on the provisions of the 2014 Financial Law, Direct Tax Central Committee Circular No. 01/2015 issued on January 21, 2015.

[2] MCA established two high-level committees in 2015 and 2019 to consider the CSR framework.

[3] Rajasthan v. Basant Aggrotech (India) Limited, (2013) 15 SCC 1; Mahabir Vegetable Oils Private Limited v. StateofHaryana, (2006) 3 SCC 620; MD University v. JahanSingh, (2007) 5 SCC 77; Madhya Pradesh vs. Ticamdas, (1975) 2 SCC 100.

[4] Under Article 469 (1), the central government may, by notice, develop rules for implementing the provisions of this Act. Section 469 (2) states: “Without compromising the generality of the provisions of subsection (1), the central government is required or provided by this law, or which provisions may or may not be made by the rules. Is there sex? “

[5] The term “project in progress” defined under Rule 2 (1) (i) of the CSR Regulations (revised January 22, 2021). Under Rule 2 (1) (i), “in-progress project” means a multi-year project carried out by the company to fulfill its CSR obligations, more than three years excluding the fiscal year in which it began. Has no timeline. A project that was initially not approved as a multi-year project, but has been extended by the board of directors for more than a year based on reasonable legitimacy.

New CSR System – Is It Charity or Tax Withholding?

https://www.bloombergquint.com/business/new-csr-regime-is-it-philanthropy-or-a-tax-levy New CSR System – Is It Charity or Tax Withholding?

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