Stay updated with GST compliance amendment: Input Tax Credit (ITC) denial on Corporate Social Responsibility (CSR) expenses.

GST law is based on the value added concept whereby one is required to pay tax only on the value he adds in the goods or services he deals in. This concept works on the mechanism of Input Tax Credit. However, GST law provides a list of items on which ITC is restricted and therefore the same cannot be availed, and it becomes a cost for the business. In Budget 2023, the list of blocked credit in section 17(5) is set to further increase. ITC in respect of goods or services procured to fulfill obligations under Corporate Social Responsibility (CSR) as per section 135 of the Companies Act, 2013 is proposed to be blocked.

There have been various opinions on this issue of whether ITC on CSR activities is available or not, many judgments given by AARs of Uttarpradesh, Tamilnadu, etc have said that ITC on CSR shall be available whereas many AARs of Gujarat, Kerala etc have denied this credit. The Government thought it prudent to settle this controversy by bringing in a specific amendment to block such credits. This amendment shall entail the following:

  • It is made clear that ITC on CSR activities will be disallowed from the date on which this amendment is notified (most probably after 9-10 from today)
  • ITC on CSR activities which was routinely being disputed by the dept will get legitimised till this amendment is notified.
  • ITC on CSR already reversed by taxpayers either voluntarily or under the instruction of the department can be re-availed.
  • Those tax payers which have chosen to not avail the ITC on CSR activities can re-avail the same keeping in mind the timelines prescribed under section 16.

It is a settled legal principle that right to avail Input Tax Credit is not a birth right, rather it is a statutory right enshrined in the GST law, hence the government of the day has the right to restrict ITC as they deem fit. By this amendment, controversy on eligibility of ITC on CSR activities will be laid to rest and unnecessary litigation on this issue will be avoided.

GST compliance

GST compliance