GST on Supplies made under Corporate Social Responsibility

Corporate Social Responsibility (CSR) refers to the voluntary contribution by certain companies towards a better society and a cleaner environment in the form of projects or programmes.

Latest Updates

1st February 2023
Important updates from Budget 2023* 
1. Section 16 is amended to state that buyers who fail to pay their supplier the invoice value, including the GST amount, within 180 days from the date of issue of the invoice, must pay an amount equal to the ITC claimed along with interest under Section 50.
2. Sections 37, 39, 44, and 52 are amended to restrict taxpayers from filing their GSTR-1, GSTR-3B, GSTR-9 and GSTR-8 for a tax period after the expiry of three years from the due date. 
3. Section 17(5) is revised to include another item under ineligible ITC being expenditure on CSR initiatives for corporates.
4. High sea sales and similar transactions that are neither supply of goods or services are considered exempt and hence ITC proportional to such sales cannot be claimed as per revised Section 17(3).
5. Schedule III has been amended to provide for paras (7) and (8) and explanation (2) to take retrospective effect from 1st July 2017.
6. Section 10 of the CGST Act has been amended to allow businesses that supply goods through an e-commerce operator to opt into the composition scheme.
*These amendments will come into force once notified by the CBIC.

What are CSR activities or CSR expenditure?

Every company, under Section 135(5) of the Companies Act, is required to comply with the CSR requirements.

The specified companies are as follows:

Every company with any one of the following during the immediately preceding financial year is required to meet Corporate Social Responsibility requirements under the Act:

• A net worth of Rs 500 crore or more
• A turnover of Rs 1,000 crore or more
• A net profit of Rs 5 crore or more

In every financial year, a company is required to spend at least 2% of the average net profits made during the immediately preceding three fiscal years by following its Corporate Social Responsibility Policy. Some of the significant expenditure covered under Corporate Social Responsibility activities are:

• Providing education
• Promoting gender equality
• Projects related to rural development
• Contribution to PM Cares Fund
• Contribution towards the protection of the environment
• Promotion of healthcare, preventive healthcare and sanitation activities related to COVID-19
• Events related to disaster management including relief activities

For more details about the applicability, importance, and latest updates on the permitted activities under CSR, read – Corporate Social Responsibility.

Availability of ITC on CSR activities

In Finance Bill 2023, it was clarified by way of amendment to the Central Goods and Services Tax (CGST) Act that input tax credit (ITC) will not be allowed on goods or services used in providing activities relating to Corporate Social Responsibility. 

The amendment is yet to be notified by the CBIC.

Popular Advance Ruling

Polycab Wires Private Limited – In this case, the company had distributed electrical goods to the flood-affected people in Kerala in the course of its CSR activities. The AAR held that the company had distributed electrical products free of cost and thus ITC would not be available as per Section 17(5) of the KSGST and CGST Act. Thus, the provisions of section 17(5) were invoked to deny ITC on goods distributed under the obligations of the CSR activities.

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