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Cash CSR donations face GST implications - GST Station

Cash CSR donations face GST implications

Cash CSR donations face GST implications

    MUMBAI: Corporate social responsibility (CSR) for large companies has now become mandatory. Yet, unfortunately, GST laws do not address the taxability of goods or services provided by companies as part of their CSR activities. In fact, even cash donations can have different GST-related consequences.

    GST specialists face innumerable queries in this regard, with complex issues relating to input tax credit ending up in litigation. In the context of cash donations (including by cheques and digital transfers), EY India indirect tax partner Utkarsh Sanghvi says, “GST is levied on ‘supply’ of goods or services for a consideration made in ‘furtherance of business or commerce’. A donation or a grant does not have a reciprocity element, nor is it for the development of one’s business. A service tax circular dated August 16, 2010 comes in handy for this interpretation.” He adds, “Thus, a cash donation should not be subject to GST. However, if it is linked to a specific beneficiary, GST consequences could arise.”

    Chartered accountant and indirect tax specialist Sunil Gabhawalla says, “In many cases, CSR donations are made with a stipulation or end-use restriction or for specific purposes. Here, there is a confusion on whether the donation can be considered as a consideration for some supply.”

    Tax experts point to a recent advance ruling by the Delhi bench in the case of Indian Institute of Corporate Affairs, which held that where specific activities (such as construction of toilets) were to be carried out against the grant funds, it was subject to GST.

    “To illustrate, in such cases, the recipient of the CSR funds (for example, a trust) engaged in construction of public toilets, as directed by the donor, is being called upon to pay GST. The trust will be regarded as the supplier of goods or services. GST is typically paid by the supplier, but collected from the buyer. So the GST burden passes on to the donor company,” explains Gabhawalla. An added problem arises, as in several cases, the input tax credit for such GST component is denied in the hands of the donor company, cite experts.

    “However, if the annual turnover of the trust is less than the exemption threshold (which in general is Rs 20 lakh for service providers), the trust does not have to register under GST and the tax liability does not arise. GST also does not apply if the trust is undertaking charitable activities (as defined under GST law) and is registered under section 12AA of the Income Tax Act,” says CNK & Associates indirect tax partner Yusuf Hakim. But the definition of charitable activities under GST law is specific and narrow. “It is for this reason that the Delhi Authority for Advance Rulings (AAR) has taken a view that construction of toilets is not specifically covered within the ambit of a specified charitable activity,” says Hakim.

    To attain tax neutrality, a CSR committee — in its report submitted to the corporate affairs ministry — suggests that implementing agencies (which do the actual CSR-related work) should be treated as partners and not service providers or vendors and there should be no GST incidence.

    Source- Times of India.

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