CSR spends on Covid may land companies in a tax tangle, CFO News, ETCFO

Companies increasing their corporate social responsibility (CSR) spend during the second wave of the Covid pandemic are set to face goods and services tax (GST) complications around input tax credits on cost incurred or goods purchased and supplied free of cost under CSR.

The government recently allowed companies to categorise certain Covid related expenditure as CSR.

These include creating health infrastructure for Covid care, manufacturing or supplying of O2 concentrators, ventilators, cylinders or any other medical equipment that’s primarily used for countering the pandemic. Tax experts said there is no clarity on the input tax credit availment under the GST framework.

“Pursuant to the specific restriction on availing credit under Section 17(5) (h) of the CGST Act and the fact that both under CSR rules and Income tax act, CSR activities are considered as non-business expenses, availment of input GST credit on CSR spends would always be contentious. This is true, even though some recent rulings under GST and under erstwhile service tax have given an affirmative answer on availability of credit and thus, tend to give hope to taxpayers on its availment,” said Harpreet Singh, partner, indirect taxes, at KPMG in India.

Input tax credit is basically GST paid on raw materials or procurements that can be set off against future tax liability of a certain kind. Most companies are paying GST when they invest in setting up Covid infrastructure for their employees or putting up an oxygen plant that would then supply oxygen concentrators to the government or hospitals.

Different companies resort to different practices. Some companies are claiming GST credit for goods being supplied free under CSR activities, while others are not claiming any credit, tax experts said.

Those claiming credit of GST on CSR spend believe it is an essential business spend and hence going by the intent of credit provisions opting for a liberal interpretation to be adopted so that credit is admissible.

“GST/VAT exemptions or benefits on free Covid-related material have been provided by countries across the globe. It may be worthwhile to look at some global best practices to see how the government can encourage private players to contribute more towards fighting the pandemic by easing the tax burden,” said Singh.

Not availing tax credit could lead to problems in cash flow statements besides being ground for future complications from the tax department. Many companies are taking contrary views and most of them are availing the tax credit — which again could lead to litigation. In some cases, industry trackers say companies that are paying for employees’ shots can also face this issue.

“Since most corporates have tied up with hospitals to inoculate their employees, who would in turn be procuring the vaccines from the manufacturers, the question of GST input tax credit in the hands of the corporate would arise only on the service charges levied by the hospital,” said MS Mani, partner, Deloitte India.

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