MCA included donation to Swach Bharat Kosh and Clean Ganga Fund now part of CSR

Union Ministry of Corporate Affairs (MCA) on 24 October 2014 announced that donations to the Swach Bharat Kosh and the Clean Ganga Fund are now part of corporate social responsibility (CSR) spends by India Inc. The notification was issued by the union Ministry on 24 October 2014.

Swach Bharat Kosh and Clean Ganga fund are set up by the Central government. Donations to Swach Bharat Koch fall under the activities for improving sanitation. While, the Clean Ganga Fund qualify as an activity for conservation of natural resources and maintaining the quality of water.

In February 2014, MCA had amended Schedule VII of the Companies Act, 2013 and a final set of CSR activities were outlined.  As donations made to eligible funds qualify for certain tax breaks, India Inc is eagerly looking forward to a notification from the Central Board of Direct Taxes (CBDT).

The tax front
The expenditure incurred towards CSR activities will not be allowed as deductible business expenditure. In other words, such expenditure would not be deducible for tax purposes under section 37(1) of the Income Tax (I-T) Act and will not directly reduce the taxable business profits of a company.

But, India Inc could avail of any tax benefits that were available in respect of such expenditure under other specific sections of the I-T Act, such as section 80G which relates to donations. For instance, contributions to the Prime Minister's National Relief Fund also qualify as a CSR spend. Further, donations to these funds are entitled to a 100% deduction from taxable income.

Under section 80G of the I-T Act, the amount of donation is deductible from taxable income, either in full or to the extent of 50%. The aggregate maximum amount which is allowed as a deduction is subject to a ceiling of 10% of the gross total income of the donor. For certain funds, such as the Prime Minister's National Relief Fund, this ceiling of 10% doesn't apply.

Hence, a notification from the CBDT with regards to the tax breaks available to donations made to Swach Bharat Kosh and the Clean Ganga Fund is crucial, say tax experts.

Background
When the Union Government announced the Clean Ganga Fund, the government had indicated that even foreign donors could get suitable tax exemptions under domestic tax laws (Indian Income Tax Act) wherever permissible.

It was also indicated that the government would explore the possibility of setting up ancillary funds in a few other countries where there is a large dominance of Indian expats — such as USA, UK, Singapore and UAE — to enable Indian migrants to contribute to the fund and get a tax benefit in these countries. It is learnt that the various modalities of this are being worked out.