Can companies avail GST benefits on CSR spending?

– By Harsh Juneja | Executive (


Section 135(5) of the Companies Act, 2013 (‘the Act’) requires every eligible company (as per section 135(1)) to spend at least 2% of the average of net profits of immediately preceding 3 financial years towards Corporate Social Responsibilities(‘CSR’) activities. The CSR spending may sometimes include contributions made to NGOs or other beneficiaries, or money paid to implementing agencies. However, quite often, the expense may relate to procurement of goods or services which are applied to one or more CSR activities. This procurement of goods or services comes with the tax cost, viz., GST. So the question is, does this GST paid, while acquiring goods or services, give rise to an input tax credit, such that the same may be claimed as a set off? A related, and more important question is, whether CSR expense for the purpose of sec. 135 (5) be the amount net of the ITC, if the ITC is claimable, or the gross amount paid?

Input Tax Credit


Section 16(1) of the Central Goods and Service Tax (‘CGST Act, 2017’) prescribes the eligibility criteria for taking Input Tax Credit. It states that “Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.”

Hon’ble CESTAT Mumbai, in the case of M/s Essel Propack Ltd. vs Commissioner of CGST, Bhiwandi, gave a view that the CSR gives a company an economically, socially and environment sustainability in the society in the long run, as a company can not operate without providing benefits to its stakeholders. Therefore, it held that if companies are unable to claim input services in respect of activities relating to business, production and sustainability of the companies themselves would be at stake.

Hon’ble High Court of Karnataka, in its judgement, in the case of M/s Commissioner of Central Excise, Bangalore vs. Millipore India (P) Ltd., also was of view that CSR Expenses are mandatorily incurred by employers towards benefit of the society and “to maintain their factory premises in an eco-friendly manner”. Therefore, the tax paid on such services shall form part of the costs of the final products and thus, the company can claim these taxes paid as input services.

Uttar Pradesh Authority for Advance Ruling (‘AAR’) in the matter of M/s Dwarikesh Sugar Industries Ltd held that a company is mandatorily required to undertake CSR activities and thus, forms a core part of its business process. Hence, the CSR activities are to be treated as incurred in “the course of business”.

Section 135(7) is a penal provision under the Act which deals with penalty on non-compliance of section 135(5)  and (6). It was observed by the AAR that a Company fulfilling eligibility criteria under section 135(1) of the Act is required to mandatorily spend towards CSR and thus, must comply with these provisions to ensure smooth run of business.

Thus, Uttar Pradesh AAR held that the expenses incurred by the Company in order to comply with requirements of CSR under the Act qualify as being incurred in the course of business and are eligible for ITC in terms of the Section 16 of the CGST Act, 2017.

Contrary ruling: Free Supply of Goods

Section 17(5)(h) of the CGST Act excludes “goods lost, stolen, destroyed, written off or disposed of by way of gift or free samplesfor the purpose of availing ITC on payment of GST. The term ‘gift’ is not defined anywhere in the CGST Act. However, in layman’s language, gift means a thing given willingly to someone without payment.

In the matter of M/s. Polycab Wires Private Limited, Kerala AAR held that distribution of necessaries to calamity affected people under CSR expenses shall be treated as is if they are given on free basis and without collecting any money. Hence, for these transactions, it was held that ITC shall not be available as per section 17(5)(h).

However, a contrast has been drawn in the Uttar Pradesh AAR Ruling towards goods given as ‘gift’ and given as a part of CSR activities. Gifts are voluntary and occasional in nature whereas CSR expenses are obligatory and regular in nature. AAR held that since CSR expenses are not incurred voluntarily and have to be incurred regularly, they are not to be treated as ‘gift’ and thus, should not be restricted under section 17(5)(h) for claiming ITC.

Availing Benefit through Beneficiary

A company contributes a sum towards a beneficial organisation such as NGOs, Charitable Trusts and Section 8 Companies (‘implementing agencies’) towards fulfillment of CSR activities. However, these implementing agencies also need to hire services of vendors to complete these activities. These vendors charge GST on the services rendered by them. Since these implementing agencies often do not generate any output, the question raises can these organizations also claim ITC on the services rendered by them?

There is a concept of ‘pure agent’ in GST. Explanation to Rule 33 of CGST Rules, 2017 prescribes that a pure agent means a person who –

The implementing agencies fulfill this eligibility criteria of being a ‘pure agent’. Rule 33 also contains some conditions on the fulfilment of which, expenses incurred by the supplier as a pure agent of the recipient of the supplier of goods or services, are excluded from the value of supply-

In our case, if an implementing agency avails any goods or services from a vendor to fulfil the CSR activities for a company, then the payment of any such amount to the vendor shall be treated as a supply made as a pure agent by the implementing agency on behalf of recipient of supply, i.e., the company. Thus, these expenses incurred by the implementing agencies shall be excluded from the value of supply and therefore, are not liable for payment of GST.

CSR Contribution: Pre-GST or Post-GST?

The Act does not clarify that the amount to be contributed towards CSR activities should be inclusive or exclusive of taxes. However, it seems that since GST is charged on supply of goods and services, irrespective of the intention of social benefit, the amount contributed towards CSR can be both inclusive and exclusive of GST. Having said that, the question still pertains on the inclusivity of the amount of GST paid towards the amount of CSR expenditure for the purpose of section 135(5) of the Companies Act, 2013.


While it seems that rationally, expenses incurred on GST for fulfillment of CSR activities should be eligible for claiming ITC, however, there is still some ambiguity in terms of legal provisions. There is one view of Kerala AAR which restricts CSR contribution under section 17(5)(h) while the Uttar Pradesh AAR had a complete inverse view. A clarification from the relevant authorities is sought in this regard so that this perplexity created by different rulings may be solved. When all is said and done, a question still pertains on the amount of the expenditure which is to be considered for the purpose of calculation of CSR expenditure.



Unspent CSR & Role of IAs

Unspent CSR

Other ‘I am the best’ presentations can be viewed here

Our other resources on related topics –


MCA circular on excess spent done by contribution to PM-Cares

-raises more questions than it settles.

Nitu Poddar, Senior Associate ( )

Setting off excess-spent on CSR

Pursuant to Rule 7(3) of the CSR Rules, 2014, a company is allowed to take benefit of the excess amount (more than the requirement under section 135(5) spent by it on CSR activities upto three succeeding financial years. This provision has come into effect from January 22, 2021.

Accordingly, the common view that has formed is that only amount that is spent in excess on and from January 22, 2021 can be set off against the CSR obligations of three succeeding year. However, the second view, and the more appropriate one is, even amount spent in excess before Jan 22, 2021 may also be set-off against the CSR obligations of a year, subject to such excess spent is done within three years of taking such set-off. That is to say, any excess spent done in FY 2019-20, 2018-19, 2017-18 could have been set-off in FY 2020-21.

The reason for the second view is that, all that the provisions of Rule 7(3) allows is “setting off “the excess spent, which is being done post January 22, 2021. 

Clarification Circular by MCA:

MCA, on May 20, 2021, has issued a Circular, purportedly clarifying the following:

  1. Any amount spent in excess during FY 2019-20;
  2. On March 31, 2020;
  3. By contribution to the PM-Cares

may be set off against the CSR obligation for FY 2020-21 (only) subject to the following conditions:

  1. Unspent amount, if any, of the previous years, should have been factored;
  2. CFO and statutory auditor to certify that such amount was
    1. contributed on 31.03.2020;
    2. pursuant to the appeal by the MCA.
  3. Details of such contribution to be disclosed separately in the CSR Report and Board’s Report. 

Issues arising from the Circular

The MCA Circular rather raises several questions and leave then unanswered:

  1. What about the contribution done prior to 31.03.2020?;
  2. What about the excess spent done in any other activity as mentioned in schedule vii?;
  3. What about the excess spent done in FY 2018-19 and 2017-18?
  4. Why a certificate from statutory auditor? This is not required for any other excess spent done neither is this part of Rule 7(3).

The Circular seems to support the view of the ICSI, as mentioned in Q-47 of the FAQ released on April, 29, 2020, which says that only excess spent done after January, 22, 2021 may be allowed to set-off in subsequent years. However, taking such view would may not be the correct interpretation of the applicability of the provisions.


Our other resources on CSR can be accessed at :

Funding through crowdfunding platform: whether qualifies to be CSR?

-Platforms different from implementing agency

-Pammy Jaiswal, Partner and Sachin Sharma, Executive (

Crowdfunding Platforms

Crowdfunding platforms are digital platforms which solicit funds for various ventures. They pave way for easy accessibility to a vast network of people through social media. Individuals, charities or companies can create a campaign for specific causes for contribution from anyone, either a corporate, or an association, or an individual. Two broad classes of crowdfunding platforms are: investment-based, which consists of stocks, royalties, and loans, where the funders are investors in a campaign and can obtain monetary benefits. The other is donation-based, where funders do not expect monetary compensation. They fund a campaign because they support its cause. For understanding the concept on crowdfunding in detail, kindly refer to our article here.

Crowd sourcing has become an important aspect for carrying out CSR activities[1]. Around 27% of the crowdfunding campaigns are initiated to cover medical expenses. Several crowdfunding platforms are running parallelly across India as well as the world. Some of the Indian crowdfunding platforms include Impactguru, Milaap, Ketto, etc. As the world is under the grip of COVID- 19, these platforms are playing their remarkable role in sourcing funds for COVID-19 relief through several campaigns. Till now, Ketto has raised ₹324.60cr for its COVID relief campaigns whereas Milaap has raised ₹182.47Cr and Impact Guru has raised ₹61.46cr for their COVID relief campaigns. Further, crowdfunding platforms are not only popular in India but also across the world. Several global platforms are also working to raise funds for various projects/ campaigns. Global Giving collection in its Coronavirus Relief Fund has moved to $13,363,987.

 Growth in transactions of crowdfunding platforms

The crowdfunding platforms have attained greater visibility and importance in India as well as globally as per the statistics[2] given below-




The first figure corresponds to the Indian position and the second figure pertains to global statistics.

What is an ‘Implementing Agency’ (IA)

The term IA has not been defined under the CSR provisions (section 135 of the Companies Act, 2013 as well as the rules made thereunder), however, the report on CSR activities uses the term IA for carrying out CSR indirectly.

IA, as the name suggests is an implementation tool for the entity to carry out its CSR activities. As per Rule-4(1) of the Companies (Corporate Social Responsibility Policy) Rules, 2014, section 8 companies, registered public trusts, and registered societies (collectively, called ‘entities’) can be referred to as IAs. The nature or activities of an IA can be distinguished from that of a beneficiary through a very thin line. Our article containing the detailed discussion on the same can be read here.

While carrying out CSR activities through an IA, there are several things that a company needs to consider after the amendment under the CSR provisions have been notified on 22nd January, 2021. They include:

  • IA which includes a section 8 company, public charitable trusts, or a society either formed by the company or otherwise needs to be registered under section 12A and 80G of the IT Act;
  • All IAs, are required to register themselves with MCA by filing e-form CSR-1; and
  • IAs which include a section 8 company, public charitable trusts, or a society not formed by the company require a track record of three years in carrying out similar CSR projects.

Crowdfunding platform working as a connecting point

Crowdfunding Platforms simply acts as connecting point between CSR contributors and CSR opportunities. It neither gets into implementation nor acts as agent for implementation, it acts merely as a connection point.

Deprived of the crowd sourcing mechanism, each company would have to look for its own sources for their CSR activity which will be a very inefficient way for carrying out CSR. India is a vast country and therefore huge number of CSR opportunities are present where each company would like to carry out its CSR obligations strategically so as to fulfil their CSR objectives. Crowdfunding platforms have filled up the information asymmetry and plays a role of an information bridge similar to what media does. Since it does not go into the implementation role at all, there is nothing wrong in routing/ using such platforms for carrying out CSR activities.

How is a crowdfunding platform different from being an IA?

An IA is regarded to work as an extended arm of the company in carrying out CSR activities. The whole purpose of involving an IA is to relieve the company from using its time to identify reliable projects and programs wherein the funds may be used or allocated. Another reason to involve an IA for carrying out CSR is that the company may not have the requisite expertise and experience to shortlist the authentic activities or entities where the money can be spent.

Having said that, on the other hand, a crowdfunding platform does not work as an extended arm of the company, rather, it is a voluntary body which acts a connecting point between the IA/ beneficiary and the company. It does not have the liberty to allocate the money in the project of its own choice, rather, the fund giver chooses the exact project or IA where it wants the money to be used.

Further, to be eligible to carry out CSR activities as an IA, registration with the MCA and under IT Act (except for govt entities and those set up under an Act of Parliament or State Legislature) is necessary while crowdfunding platforms may be relieved from such mandatory requirement considering its role as a connecting point between the fund raiser and the fund giver. Therefore, crowdfunding platforms cannot be regarded as IA.

The third point of difference between the two is when a CSR activity is routed through the IA, monitoring and utilisation report is required to be supplied by such IA to the Company. Whereas, when funds are contributed through crowdfunding platform, the ultimate beneficiary or IA which takes the funding, is liable to provide a utilisation report to the fund giver.

Features of the crowdfunding platform which distinguishes it from an IA

As discussed above, a crowdfunding platform acts as a medium to connect the contributor and the contribute. If it also relevant to understand the extent these crowdfunding platforms differ from an IA.

We have gone through the websites of several crowdfunding platforms and have presented a tabular presentation of areas where they are different from becoming an IA.

Basis Ketto[1] ImpactGuru[2] Milaap[3] Role of IAs
Accountability It shall not in any manner be responsible or held accountable for any transaction between the Users. No obligation to become involved in disputes between any Users, or between Users and any third party arising in connection with the use of the Site Assume no responsibility to verify whether the Donations are used in accordance with any applicable laws, and such responsibility rests solely with the Champion or Charity, as applicable Accountable to the companies donating the funds.
Utilisation of funds It is merely an intermediary and does not interfere in the transaction between Donors / Contributors and Campaigner Not responsible in any way whatsoever towards the end utilization of funds Facilitates the Donation transaction between Champions and Donors, but is not a party to any agreement between a Champion and a Donor, or between any user and a Charity. It decides the areas and entities where funds are to be allocated
Obligations or liabilities wrt funds collected Does not hold any right, title or interest over the funds or rewards or have any obligations or liabilities in respect of such providing the same to the Donor / Contributor Does not take any responsibility for making sure that the project for which the funds are raised through its Site is completed and made available to the Funders No control over the conduct of, or any information provided by a Champion or a Charity, and Milaap hereby disclaims all liability in this regard Liable if the same remains unspent or not spent within the permitted activities. Utilisation reports have to be shared signifying the utilisation of funds for permitted activities
Liability for correctness of information on the platform Not liable Not liable Not liable Liable
Responsibility for success/ outcome of the project Not liable Not liable Not Liable Liable
Verification whether funds are used as per applicable laws or fund-raising purpose Responsibility on the Campaigner Responsibility on the Campaigner Responsibility on the Campaigner Responsibility on the IA

Safeguards/ points of consideration in funding through the platform

  1. Funds are going to the beneficiary directly:

The fund is put directly from the crowdfunding platform to the beneficiary’s account and no third party is involved here. In this, it becomes a case of direct CSR activity. Utilisation report is required.

  1. Funds are going to another IA (registered):

Where the funds raised by crowdfunding platform goes to an entity registered as an IA with MCA, monitoring as well as utilization report will be required

  1. Funds are going to another IA (registered) which itself carries out CSR activities:

Where the fund raiser is a registered IA, however, carries out the CSR activities itself, it will be a case of direct CSR and not through an IA.


 Crowdfunding platforms are emerging as promising sources for business houses to fulfil their CSR goals. These platforms should be expected and at the same time be bound by the mandatory registration provisions with the MCA since their role is not be act as an IA but a mere platform where fund raisers and fund givers can meet.

Ministry of Corporate Affairs (MCA) vide several circulars have brought several relaxations and broad based the activities under Schedule VII in relation to COVID-19 and health care.

Looking at the ongoing era of the pandemic, it has become very common for several digital platforms to come forward and act as source of link between the agencies/ beneficiaries and the corporates for several activities which are also covered under Schedule VII of the Companies Act, 2013.

Our other resources on CSR can be read here

[1] Read more here





Whether expense towards Corporate Environment Responsibility (CER) be eligible as CSR spending?

Nitu Poddar, Senior Associate (


Since the amendment in the CSR provisions on 22.01.2021, even the existing eight year old provision has gained substantial attention and deliberation by the stakeholders. This article is to discuss yet another topic on CSR which is “whether amount spend towards Corporate Environment Responsibility (CER[1]) stipulated as specific condition under Environment Clearance by the Ministry of Environment, Forest and Climate Change (MoEFCC) can be included as a CSR project?” In other words, whether CER obligations can be merged with CSR obligations or are these two mutually exclusive.

What is CER?

Industrial sectors (specified in the Environment Impact Assessment (EIA) Notification 2006 dated September 14, 2006[2]) which have direct environmental footprint are required to take prior Environment Clearance (EC) from the MoEFCC before setting up any new project / expansion / modernisation of an existing project / change in the product-mix.  While granting such EC, the Ministry puts certain conditions (requirements) on the applicant (referred as Project Proponent (PP) in two categories – specific conditions and general conditions – implementation of which, if unsatisfactory, the EC may be revoked. One of such specific condition imposed by the MoEFCC while granting EC is that the applicant should undertake CER / ESC which is to be based on the local needs and should be restricted to the affected areas around the proposed project.

As per Office Memorandum[3] (OM) No. F. No. 22-65 / 2017-IA.III of MoEFFC dated May 01, 2018,

Some of the activities which can be carried out in CER, are infrastructure creation for drinking water supply, sanitisation, health, education, skill development, roads, cross drains, electrification including solar power, solid waste management facilities, scientific support and awareness to local farmers to increase yield of crop and fodder, rain water harvesting, soil moisture conservation works, avenue plantation, plantation in community areas, etc.

Unlike CSR, CER is based on project cost and not profits made by the proposed project.  The obligation of CER is within the range of 2.5% – 5% of the project cost.

Why CER?

The MoEFCC, in its Office Memorandum (OM) No.J-11013/25/2014-IA.I dated August 11, 2014, discussed that since the CSR obligation is based on profits, there might be cases where the proposed project is yet to make profit. In such case, since the project will have already created impact on the society and environment, it is required to commit towards the same, irrespective of profits, through CER commitment. Further, as per the 2018 OM, all the activities proposed under CER is also required to be monitored and reported bi-annually and also posted on the website of the company.

Anomaly created by different OMs and correspondences of MoEFCC

Considering that the activities undertaken pursuant to CER are akin to the one of the activities prescribed under schedule VII of the Companies Act, 2013 – specifically “ensuring environmental sustainability” among others, it is intuitive to say that expenditure towards CER should be includes as compliance of CSR commitment.

However, on perusal of several OMs and summary record of meeting of the Expert Appraisal Committee (EAC), formed under MoEFFC, one may have to re-think on the above ratio. The relevant extracts of the OMs and summary record are reproduced below for perusal:

  1. [4]2014 OM:
  1. ….In case these activities (or some of these activities) are proposed to be covered by the project proponent under CSR activities, the project proponent should commit providing for the same. In either case, the position regarding the agreed activities, their funding mechanism and the phasing should be clearly reflected in the EC letter.

Author’s Comment: This indicates that overlap might be acceptable provided the commitment is clear from the beginning.

  1. [5]Summary record of 2nd meeting of EAC – 2015 –

The Member Secretary has informed the Committee that presently the Expert Appraisal Committee has been insisting for earmarking either 2.5% of the total cost of the project or 5% of the total cost of the project towards Enterprises Social Commitment / Corporate Social Responsibility, depending upon the size of the project. In this context, copy of Office Memorandum No. J-11013/25/2014-IA.I dated 11.08.2014 issued by the Ministry regarding guidelines on Environment Sustainability and CSR related issue was circulated. Deliberating on the issue, the Committee was of the view that the name of ‘Enterprises Social Commitment’ or ‘Corporate Social Responsibility’ in respect of environment clearance should be in the first place considered for replacement by the name ‘Environmental Conservation Support Activities’.

Author’s Comment: From this discussion, it seems that the terms ESC / now CER and CSR have been used interchangeably and therefore CER and CSR commitment can overlap.

However, in the same paragraph, the decision taken by the EAC has been recorded as follows:

The Committee unanimously agreed for uniform earmarking 2.5% of the capital cost of the project towards Environmental Conservation Support Activities, in addition to the committee’s  [this seems to be a typo error- should be “company”] commitment under the Companies Act.

Author’s Comment: This indicates that CER and CSR are two independent commitments and responsibility of the company and both have to be individually followed and fulfilled.

In one of the scrutiny and deliberation as discussed in the summary records, in the matter of Expansion of Cement Plant, Clinker (1.8 MTPA to 2.6 MTPA) at Village Rauri, Tehsil Arki, District Solan, Himachal Pradesh by M/s Ambuja Cement Ltd. [F. No. J-11011/986/2008-IA-II (I)], one the specific condition was as follows:

  1. At least 5 % of the total cost of the project shall be earmarked towards the Enterprise Social Commitment based on Public Hearing Issues and item-wise details along with time bound action plan shall be prepared and submitted to the Ministry’s Regional Office at Dehradun. Implementation of such program shall be ensured accordingly in a time bound manner.

The project proponent mentioned that they have already spent an amount of 3.01%, 4.06% and 2.57% of the net profit after tax (PAT) towards CSR activities in the year 2012, 2013 and 2014 respectively in compliance of the Companies Act 2013. It has been requested to consider the proposal to waive-off the Specific Condition No. XV, as mentioned above.

The Committee noted that the expenditure of 5% of the total cost of the project towards ESC was prescribed for a period of 5 years. Based on the discussions, held the Committee decided that instead of waiving off the specific condition, it is recommended to extend the implementation period of 5 years for implementing ESC activities to a period of 10 years, which the proponent had also agreed to.

Author’s Comment: This again seems to indicate that MoEFCC is not inclined to mix the CER commitment with the CSR commitment.

  1. [6]Summary record of 2nd meeting of EAC – 2016 –

In all the ECs being granted, as a part of specific condition, the CER commitment has been recorded as below:

At least 2.5% of the total cost of the project shall be earmarked towards the Enterprise Social Commitment based on Public Hearing issues, locals need and item-wise details along with time bound action plan shall be prepared and submitted to the Ministry’s Regional Office. Implementation of such program shall be ensured by constituting a Committee comprising of the proponent, representatives of village Panchayat and District Administration. Action taken report in this regard shall be submitted to the Ministry’s Regional Office.

In addition to the above provision of ESC, the proponent shall prepare a detailed CSR Plan for the next 5 years including annual physical and financial targets for the existing-cum-expansion project, which includes village-wise, sector-wise (Health, Education, Sanitation, Skill Development and infrastructure etc) activities in consultation with the local communities and administration. The CSR Plan will include the amount of 2% retain annual profits as provided for in Clause 135 of the Companies Act, 2013 which provides for 2% of the average net profits of previous 3 years towards CSR activities for life of the project. A separate budget head shall be created and the annual capital and revenue expenditure on various activities of the Plan shall be submitted as part of the Compliance Report to RO. The details of the CSR Plan shall also be uploaded on the company website and shall also be provided in the Annual Report of the company.

Author’s Comment: The view of keeping CER and CSR as two independent commitments seems to being continued.

  1. [7]2018 OM (supersedes 2014 OM) –. Relevant extracts have been reproduced:

(I) The cost of CER is to be in addition to the cost envisaged for the implementation of the EIA/EMP which includes the measures for the pollution control, environmental protection and conservation, R&R, wildlife and forest conservation/protection measures including the NPV and Compensatory Aforestation, required, if any, and any other activities, to be derived as part of the EIA process. 


(IV) The proposed activities shall be restricted to the affected area around the project.

(VI) The entire activities proposed under the CER shall be treated as project and shall be monitored. The monitoring report shall be submitted to the regional office as a part of half-yearly compliance report, and to the District Collector. It should be posted on the website of the project proponent.


Author’s Comment: The provision with respect to commitment of any particular CER activity as CSR, as was present in the 2014 OM, has been dropped.

  1. [8]Minutes of 53rd meeting of EAC (Infrastructure-2) held in 2020:

While presenting the parameters of the Project to obtain EC, Tamil Nadu Waste Management Limited, represented as follows:

(xi) The CER fund shall be allocated as per the MoEF&CC office memorandum 65/2017-IA.III dated, 1st May, 2018, which is around Rs. 0.48 Crores which shall be utilized over a period of 3 years. The CSR budget will be allocated as per rules prescribed by the Government of India / Companies Act 2013.

  1. [9]Standard EC Conditions – MoEFCC OM No. F.No. 22- 34/2018-IA.III dated 9th August 2018:

7. Corporate Environment Responsibility


  1. The company shall have a well laid down environmental policy duly approve by the Board of Directors. The environmental policy should prescribe for standard operating procedures to have proper checks and balances and to bring into focus any infringements/deviation/violation of the environmental / forest /wildlife norms/ conditions. The company shall have defined system of reporting infringements / deviation / violation of the environmental / forest / wildlife norms / conditions and / or shareholders / stake holders. The copy of the board resolution in this regard shall be submitted to the MoEF&CC as a part of six-monthly report.

iii. A separate Environmental Cell both at the project and company head quarter level, with qualified personnel shall be set up under the control of senior Executive, who will directly to the head of the organization.

  1. Action plan for implementing EMP and environmental conditions along with responsibility matrix of the company shall be prepared and shall be duly approved by competent authority. The year wise funds earmarked for environmental protection measures shall be kept in separate account and not to be diverted for any other purpose. Year wise progress of implementation of action plan shall be reported to the Ministry/Regional Office along with the Six Monthly Compliance Report.
  2. Self environmental audit shall be conducted annually. Every three years third party environmental audit shall be carried out.

Author’s Comment: Looking at the elaborative independent requirements / compliance in respect of CER, the view about the intent of the Ministry to keep CER independent of CSR gets stronger

Provisions of Companies Act, 2013

It is also pertinent to note that pursuant to Rule 2(d)(vi) of the Companies (Corporate Social Responsibility Policy) Rules, 2014 ,“activities carried out for fulfilment of any other statutory obligations under any law in force in India” is excluded from the definition of CSR. The idea behind this exclusion seems to be that what a company is obligated to spend as a part of its statutory obligation is anyway a mandatory condition. Such statutory compliance, even if it results into a spending, cannot be regarded as CSR spending. An example may be payment of taxes many of which are dedicated to infrastructure activities. Swachh Bharat Cess is specifically towards cleanliness. However, one cannot take such an expense as a spending towards CSR. Hence, (CSR) responsibility and statutory obligations cannot be inter-mixed.

Difference between CSR and CER

While already discussed above, the difference in CER and CSR is being highlighted:

  1. CSR spending is profit-linked whereas CER spending is project cost-linked. Hence, CER may, at times be applicable even before the company has started making profits.
  2. Another major difference between EC-triggered spending and CSR spending is that there is a wide range of activities which may qualify as CSR. However, the EC forces these activities to be focused and restricted around village/social development in the areas affected by the project only. In that sense, the EC forces the entity to give back to the local area where the company has an environment footprint.


While it would have been rational to include CER under CSR, but this seems to be grey in terms of clarity, both legally and practically. There are two school of thought that is being endorsed – one, that the CER and CSR are two different statutory obligation under two different ministries and therefore should be honoured independently; the other, and more logical argument is that both the commitment are meant to return back to the society and environment on which the company has left its footprint. Accordingly, taking a view that CER and CSR commitments are mutually independent would be putting the company to double compliance for a single objective. Considering that CER is applicable, irrespective of profit, the same should ideally be aligned with CSR plan of the company where section 135 of Companies Act, 2013 is applicable.

While this question may lurk until there is any explicit clarity from either of the ministries, from the bi-annual disclosure on compliance report being submitted by the companies, it seems that India Inc is divided on this matter.


[1] CER has also been termed as Enterprise Social Commitment (“ESC”) in several ECs granted to applicants. Later, in the Office Memorandum (OM) No. F. No. 22-65 / 2017-IA. .III of MoEFFC dated May 01, 2018, the terms CER was used.

















Conflicting provisions on CSR applicability under CA, 2013 & CSR Rules

CSR Rules require further tailoring to fit

CS Ajay Kumar K V | Vinod Kothari and Company

Corporate Social Responsibility (‘CSR’) framework in India has always been adaptive to changing times and has witnessed quite an evolution. The basic idea behind the CSR provisions was to promote responsible and sustainable business philosophy at a broad level and to encourage companies to come up with innovative ideas and robust management systems to address social and environmental concerns of the local area and other needy areas in the country.

Despite the evolution and series of amendments, certain provisions in the Companies (Corporate Social Responsibility Policy) Rules, 2014 (‘CSR Rules’) continue to conflict with the requirements under section 135 of the Companies Act, 2013 (‘CA, 2013‘). This article discusses two of such conflicting provisions relating to CSR applicability.

As per Section 135 (1) of Companies Act, 2013, CSR provisions were originally applicable to companies meeting the thresholds of INR 500 crore net worth or INR 1000 crore turnover or INR 5 crore net profit during any financial year. The meaning of the term ‘any financial year’ was clarified by MCA to imply any of the three preceding financial years. This was amended vide the Companies (Amendment) Act, 2017 (‘CAA, 2017’) thereby shifting the applicability on companies meeting any of the aforesaid criteria during the immediately preceding financial year, on the basis of recommendation made by High-Level Committee on Corporate Social Responsibility (‘HLC-CSR’)1. Further, in terms of Section 384 (2) of CA, 2013 CSR provisions are applicable to foreign companies as well.

Conflicting provision under CSR Rules

  • On Applicability [Rule 3 (1)]

Rule 3 (1) of CSR Rules provides that a company including its holding or subsidiary, and a foreign company defined in Section 2 (42) of CA, 2013 fulfilling the criteria specified under Section 135 (1) of CA, 2013 are required to comply with CSR related provisions.

Section 135 (1) is absolutely clear on the applicability par. Therefore, the intent to include holding and subsidiary company of a company that meets the criteria is unclear. If the holding or subsidiary company independently meets the criteria specified under Section 135 (1), only then it will be required to comply with CSR related provisions.  The applicability cannot be linked with applicability of the Section 135 (1) to the holding or subsidiary company.

  • Cessation of Applicability [Rule 3 (2)]

In terms of Section 135 (1) read with Section 135 (5), companies meeting the aforesaid criteria during the immediately preceding financial year are required to constitute CSR Committee and spend in every financial year, at least 2% of the average net profits of the company made during the three immediately preceding financial years. Consequently, companies not meeting any of the aforesaid criteria during the immediately preceding financial year are not required to ensure CSR related compliances[1].

However, Rule 3 (2) continues to provide a time frame of 3 consecutive financial years as an eligibility to discontinue ensuring compliance under Section 135. The said provisions have become redundant after enforcement of CAA, 2017. Relevant extract of HLC-CSR is as under:

 “The Companies (Amendment) Act, 2017 has amended the eligibility criteria as being based on financial parameters of the ‘immediately preceding’ financial year instead of three immediately preceding financial years prevalent until then. Rule 3(2) of the Companies (CSR Policy) Rules, 2014 specifies that companies which cease to be eligible under Section 135(1) of the Act for three consecutive financial years shall not be required to comply with provisions of Section 135.

 In view of the 2017 amendment, Rule 3(2) is redundant. “

Power of Central Government to revise thresholds

The Report of the Company Law Committee in 2019[2] based on the experience gained from the industry recommended the revision of the net worth/ turnover/ net profit thresholds specified in Section 135(1) from time to time to suit the changing requirements of the economy. The extracts of the committee note were;

“The Committee noted the merit in ensuring that static financial thresholds do not come in the way of corporate-driven socio-economic development and environmental conservation. In order to keep such revision process timely, the Committee recommended insertion of suitable provisions in the Section 135(1), which would enable the Central Government to enhance such limits by way of rules.”

However, the provisions of the Companies Act, 2013 do not provide for enabling power to the Central Government to revise the statutory thresholds framed 8 years back.


Prior to enforcement of CAA, 2017, the applicability was required to be ascertained based on the net-worth, turnover and net profits during any of the three preceding financial years. Therefore, Rule 3(2) of CSR Rules also provided a similar timeline for determining inapplicability of the CSR related provisions.

However, pursuant to amendment in Section 135 (1) by way of CAA, 2017 the Company is required to ascertain applicability by referring to the net-worth, turnover and net profits during the immediately preceding financial year. Accordingly, the inapplicability provided in Rule 3 (2) also was required to be aligned with amended Section 135 (1). Despite the deletion recommended by HLC-CSR, the provisions reflect under CSR Rules. Accordingly, companies need not wait till deletion of Rule 3 (2) as the same is anyways redundant post enforcement of amendment made in Section 135 (1).

Further, Rule 3 (1) of CSR Rules does not provide any additional clarity on the applicability and should be suitably amended. Lastly, enabling power to review static thresholds may also be inserted in Section 135 (1) of CA, 2013.




Our other material on CSR can be accessed through the below link:

Corpus contributions: Whether CSR?

Ajay Kumar K V | Vinod Kothari and Company


Corporate Social Responsibility (‘CSR’) is a concept whereby an entity integrates its business with the social goals in order to achieve a socio-economic balance. In India, section 135 of Companies Act, 2013 (‘Companies Act’) and the rules made thereunder govern CSR activities to be mandatorily undertaken by companies which fulfill the criteria as specified in the said Act. The CSR norms have recently undergone substantial changes[1].

When the CSR provisions were initially notified, corpus contribution to specific funds & activities was considered to be CSR expenditure under the extant CSR Rules (see, Rule 7 before amendments). The term ‘contribution to corpus’ led to confusion among the industry and MCA came out with a clarification letter (No. 05/01/2014- CSR) dated 18th June, 2014[2] clarifying that the contribution to Corpus of a Trust/ society/ section 8 companies etc. will qualify as CSR expenditure as long as (a) the Trust/ society/ section 8 companies etc. is created exclusively for undertaking CSR activities or (b) where the corpus is created exclusively for a purpose directly relatable to a subject covered in Schedule VII of the Act.

However, the CSR rules, in their present form, do not mention the term ‘corpus’ anywhere. As such, the question is whether corpus contribution is still an eligible CSR expenditure.

What is ‘corpus’?

‘Corpus’, in the context of trusts, etc. would generally mean contributions in the nature of capital. The courts and tribunals have opined that corpus specific voluntary contributions are of capital nature and hence are not taxable at the hands of the trust. In Sukhdeo Charity Estate v. Commissioner of Income-Tax[3], the Rajasthan High Court observed as follows:

“”Corpus” is a Latin word and the English meaning of it is a “body”. In Random House Dictionary, college edition, page 301, one of the meanings of “corpus” is “a principal or capital sum, as opposed to interest or income”. Similar is the meaning of the word “corpus” in Black’s Law Dictionary, 5th edition, page 310, Thus, a capital amount in the form of money, movable or immovable property and the donations received by a charitable trust for specific purposes may be said to be corpus or remained any capital in a fund in contrast to income.

The Technical Guide[4] issued by the Institute of Chartered Accountants of India observes specific features of ‘corpus’ in the context of non-profit organisations (NPOs). The Technical Guide also discussed various kinds of ‘funds’ as may be maintained by the NPOs – restricted funds, unrestricted funds, etc. Restricted funds are subject to certain conditions set out by the contributors and agreed to by the NPO when accepting the contributions. The restriction may apply to the use of the moneys received or income earned from the investment of such moneys or both. Funds, the use of which is subject to legal restrictions, are also considered as restricted funds.

See also, exposure draft on Uniform Accounting & Reporting Framework for NGOs[5] which also makes similar observations.

Corpus contribution under Income Tax Act

Voluntary contributions to trusts, etc. are made taxable vide the definition of income under Section 2(24) (iia) of the Income Tax Act which reads as under-

“2(24)(iia) Voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) or by any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or other institution referred to in sub-clause (iiiae) or sub-clause (via) of clause (23C) of section 10 or by an electoral trust.”

As per Section 12 of the Income Tax Act, any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes.

It is a settled legal proposition, in case of a registered Trust under the Income-Tax Act, the corpus specific voluntary contributions are outside the scope of income as defined in section 2(24)(iia) of the Act due to their “capital nature”.

See, Sukhdeo Charity Estate v. Commissioner of Income-Tax (supra).  In ITO v. Shri Sachyaya Mataji Trust [ITA No.538/Jodh/2013,] dated 09/05/2014[6], the Jodhpur bench of ITAT held that if a voluntary contribution is made with a specific direction, it shall be treated as capital of the trust for carrying on its charitable or religious activities. Then such an income falls under section 11(1) (d) as is not liable to tax. If the intention of the donor is to give that money to a trust to keep in trust the account in deposit and utilise the income therefrom for carrying on a particular activity, it satisfies the definition part of the corpus. The assessee would be entitled to the benefit of exemptions from payment of tax.

On an analysis of the above case laws and the provisions of the Income Tax Act, ‘corpus’ would include sums given with specific directions.

Thus voluntary contribution made with a specific direction as in the case of a CSR project contribution is a capital receipt for the Trust and hence not taxable as income. The money received in these funds has a specific purpose and not available for conducting activities that are ancillary to the main objects of the trust.

Corpus Contribution and CSR

The above discussion brings in more clarity with respect to the term ‘corpus contribution’. Corpus contribution, as is generally understood, is a contribution of capital nature, given with specific directions. In respect of CSR, since it has a specific purpose and is mandated by the law, it can be termed as corpus contribution.

The objective of CSR is broad and restricting CSR to only projects/programmes to be undertaken by the company (either directly or through implementing agencies) would narrow down the benefits which CSR provisions intend to offer. As such, fund contributions (of course, subject to certain conditions), should qualify as CSR Expenditure.

In Technical Guide on Accounting of CSR Funds by Third Parties [February, 2021][7], para 26 states as follows –

“26. The third parties i.e. section 8 company, or a registered trust or registered society may receive Corpus donation, which could be a CSR expenditure in the hands of the donor company if the required conditions are complied with. Corpus donations are with a specific direction regarding the use of the funds and characteristically capital in nature. MCA in General Circular No.21/2014 dated 18th June 2014 has clarified that contribution to Corpus of a Trust/ society/ section 8 companies etc. will qualify as CSR expenditure . . .”

Therefore, note that, such corpus contribution will still be subject to the 2 conditions as stated in the MCA Circular of 2014 (see, above). Also, there must be clear directions on the part of the company to the said entity as regards activities to be undertaken, modalities of fund utilisation, etc. and the company shall use appropriate monitoring and reporting measures to satisfy itself that the funds have been utilised for the specified activity/activities.

Here, one should also distinguish between fund contribution to an entity and making disbursement of funds to an implementing agency. In our earlier article titled ‘Understanding the borderline between implementing agencies and beneficiaries’[8], we have discussed distinguishing features of an ‘implementing agencies’, and ‘beneficiaries’ and the consequential impact of the same on the CSR compliances by the company. In case of fund contribution, the entity shall rather be a ‘beneficiary’ and not an ‘implementing agency’.


Basis discussions above, one may view that corpus or fund contributions should qualify as CSR expenditure provided that, the following conditions are fulfilled –

  • (a) the entity is created exclusively for undertaking CSR activities or (b) where the fund/corpus is created exclusively for a purpose directly relatable to a subject covered in Schedule VII of the Act.
  • the company gives specific directions to the entity with respect to activities, etc. to be undertaken, and for utilisation of the funds so contributed;
  • the entity provides proper fund utilisation reports to the company such that the company can assess impact of the contributions and satisfy itself that the funds have been actually used for the specified activities.

The above conditions are in addition to the overarching regulatory requirements of having a CSR committee, and a well-defined CSR policy, etc. Any corpus/fund contribution proposed to be made shall be subject to overall regulatory requirements.

[1]  Read our various articles on




[4] See Technical Guide on Accounting for Not-for-Profit Organisations here:



[7] ICAI:


Understanding the borderline between implementing agencies and beneficiaries

Sikha Bansal, Partner and Payal Agarwal, Executive 


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FAQs on CSR 2021 Amendments

FAQs on CSR 2021 Amendments

[These FAQs pertain to the amendments made vide the Companies (Amendment) Act, 2020 and the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021. These FAQs need to be read with our FAQs on CSR]

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