Budget Proposals -2023 Series: Asking Questions and Finding Answers [Part III]
ITC: Blocked Credit: Dealt with the discussion of amendment in Schedule III changes.
This blog is one of a series of topic-specific FAQs concerning Budget 2023 proposals. It addresses the practical issues raised due to proposed changes.
Vivek Laddha, Manish Gupta, Pooja Patwari
FAQ 1. Is there any new entry in section 17(5) i.e. blocked credit?
Law Brothers’ View: Yes, ITC shall not be available in respect of goods or services or both received by a taxable person, which are used or intended to be used for activities relating to his obligations under corporate social responsibility referred to in section 135 of the Companies Act, 2013.
Kindly note that section 135 of Co. Act, 2013 provides that every company having
- net worth of rupees 500 crore or more, or
- turnover of rupees 1000 crore or more or
- a net profit of rupees 5 crore or more
during the immediately preceding financial year shall spend, in every financial year, at least 2% of the average net profits of the company made during the three immediately preceding financial years, or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years.
It infers that in the case where the company spends the amount by procuring the goods or services or both for activities relating to CSR, the ITC on such expenditure is proposed to be blocked.
FAQ 2. What if such expenditure is not incurred in pursuance of the requirement of section 135 of Co. Act?
Law Brothers’ View: Strict interpretation suggests that ITC shall not be blocked in case voluntary spending in name of CSR.
FAQ 3. What is the position on the date for input tax on CSR expenditure?
Law Brothers’ View: This is very clear that it is a prospective amendment. Presently, this blocking is not in the scenario and therefore ITC can not be denied till the proposed provision is made effective.
This provision will increase the cost to the companies. Now, neither the CSR expenditure is allowed as expenditure in Income Tax nor its ITC is proposed to be allowed.