Corporate Social Responsibility

Moral responsibility now being enforced through legal regulation

CSR was an old concept & much talk about subject since long back as much as the evolution of wealthy corporate houses after the industrial revolution, till the recent past when CSR took the shape of a legislation. Earlier it was being used as a tool of branding or improving corporate image; in a way, it stood for the corporate conscience based on a noble value system. Basically it reiterates the need for the businesses to respond and repay what it can to the society as cost of its business growth to the society.

This is one duty the business is expected to do and it usually does on a voluntary basis. After considerable debates and discussions; a larger step was taken by the Indian government this year, in the form of the Companies Act, 2013. This legislation requires companies to take action, make investments, and report against a number of metrics related to Corporate Social Responsibility (CSR).

Requirements pertaining CSR are found in Sec 135 and Schedule VII of the new Companies Act 2013. The government has put out the draft rules pertaining to CSR in the public comments and suggestions. Once the Rules are accepted and notified it will come into effect from the date so notified. It is expected that the entire scheme of things pertaining to CSR is implemented; likely to from the financial year 2014-15.

Initially the following categories of companies shall be covered under CSR regime.

·         Companies with an annual turnover of 1,000 crore INR and more, or

·         Net worth of 500 crore INR and more, or

·         Net profit as low as five crore INR and more

Though the threshold limit of net worth and turnover are high the profit criteria is relatively low which would cover a number of companies under the CSR ambit. This will, in some cases also extend to small and medium sized enterprises (SME).

The Act encourages companies to spend at least 2 percent of their average net profit over the previous three years on CSR activities. Among the eligible activities included in the act are:

1. Eradicating extreme hunger and poverty;
2. Promotion of education;
3. Promoting gender equality and empowering women;
4. Reducing child mortality and improving maternal health;
5. Combating HIV, AIDS, Malaria and other Diseases;
6. Ensuring environmental sustainability;
7. Employment enhancing vocational skills;
8. Social business projects;
9. Contribution to the Prime Minister's National Relief Fund or any other fund setup by the Central Government or the State Governments for socio-economic development and relief and funds for the welfare of the Scheduled Castes, Scheduled Tribes, other backward classes, minorities and women;
10. Such other matters as may be prescribed.

In India, of course, there are pressing socio-economic issues including a dizzying level of economic inequality and the remnants of a caste system that, of course, publicly disavowed, undoubtedly still lives on quietly in the hearts and minds of many. While these issues of poverty and inequality are not directly addressed by the CSR actions, they will likely to be impacted by the promulgation of more open policies.

The act spells out specific actions for the board of directors including the formation of a CSR committee. The board must also approve the CSR policy and oversee its implementation. It also must monitor the 2 percent spend. If the spend level is not achieved, the board must explain why.

The CSR committee must contain three or more directors with at least one independent director. They are responsible for formulating the policy and recommending it to the board, as well as developing and monitoring the activities and expenditures.

Rules also says that unspent amounts can be rolled over to the subsequent years, though it is unclear whether excess spent in a particular year can be carried forward and adjusted in subsequent years. A company which is mandated to spend on CSR as per Sec 135 of the Act fails to do so shall explain the reason for its inability to do so in any year. A failure to do so will attract a fine of not less than Rs. 50,000/- and not Rs.25, 00,000/-.

Companies Act let us now turn to the taxation impact of these provisions. The draft CSR Rules leave it to the CBDT to look at the taxation benefits which could accrue to the companies. Having seen the provisions, it looks as if companies would be able to bring the CSR spending under the Income Tax Act by contributing, scientific research purposes and through contributions to approved funds for specific purposes.

All of this represents an important step, encouraging companies across a broad spectrum of Indian industry to fall into line with the many companies around the world that have committed to this path.

How to Avoid Income Tax Notices

KNOW SOME COMMON REASONS; WHY TAX AUTHORITIES SEND YOU NOTICES

The Income Tax Department has always been a nightmare between business owners for long. Although the taxpayers file their returns within due time and paying all taxes they still have chances to receive Income Tax Notices that further give rise to many hassles & mental agony among the tax payers.

Recently the IT Department has launched a drive to ensure greater tax compliance; thousands of taxpayers have been served notices after discrepancies were noted in their tax returns or their TDS details during last three months. This sudden rise in the number of tax notices is not because people have stopped paying taxes or filing their returns. It’s just because the tax authorities now have an integrated database on taxpayers and tracking various financial transactions about all pan holders. Here are some common mistakes that give a chance to IT Department to send you an IT Notice. Be careful for the following things to avoid such communication of IT Department.

1.    Not filing returns if income is above 2 lakh

If your gross taxable income before deduction under any section is above 2 lakh, it is mandatory for you to file your return. If you don’t file it, you can be slapped with a penalty of up to 300% of the outstanding tax. Even if there is no tax liability, you have to file the return if the gross income before various deductions is more than the basic exemption limit.

2.    Not filing return by the due date

All company assesse & businesses required to get their accounts audited, all such cases are required to file their IT returns by 30^th September each year while all other filers have 31^st July as their last date. You can file your income tax return till the end of the assessment year if there is no tax due. For example, the tax return for 2012-13 can be filed till 31 March 2014 without incurring any penalty if the tax has been paid. But if some tax remains unpaid, filing your return after the deadline could lead to a penalty of 5,000. Also, you are not allowed to carry forward losses or revise the return if you file after the due date.

3.    Ignoring Form 26AS before ITR filing

The Form 26AS is a gist of all the taxes paid by an individual during a financial year or credited to his account through TDS deducted by various sources. You can easily access your Form 26AS online. Some banks also provide this facility to their Net banking customers. Any income shown in your Form 26AS but not shown in your return or any tax credit being claimed in your ITR but not being shown in your 26AS statement; is an invitation to IT notice from department. Therefore make yourself double sure before filing your IT Return that all the Information given are correct.

4.    Not mentioning AIR Details

The IT Return form requires every assessee to fill detail about 8 big cash/ bank transactions; to which most of the assessee take very lightly. This column requires information like cash deposit into saving banks, property purchases, Investments in units, shares, debentures, etc. Such avoidance may become a call to communication from income tax department; therefore you must be careful in writing AIR details in your IT returns.

5.    Not declaring the previous employer’s income

This is a common problem and was easily missed by the tax authorities in the past. However, now that the tax database has been integrated, don’t think you can ignore your income from a previous job. If your employer deducted TDS on your income, the details would be in your Form 26AS, and the CASS will immediately flag this discrepancy. You can be levied a penalty of up to 300% of the tax evaded.

6.    Not declaring interest on deposits and savings

The interest earned on bonds, fixed deposits, recurring deposits and savings accounts is taxable and should be mentioned in your tax return. Up to 10,000 earned on your savings bank account is tax-free, but it still needs to be included in your total income for the year. Likewise, the PPF interest income is tax-free, but should be included in the exempt income. Interest on savings account is exempt up to 10,000 for the assessment year 2013-14; while interest from post office savings is exempt up to 4,000, or 8,000 for joint accounts.

7.    Mismatch in income and expenses & investments

Financial services firms, registration authorities and merchant establishments are supposed to report certain high-value transactions to the CBDT. The Income Tax Department gets all information on the basis of your PAN. The CASS matches this information with the returns filed by the taxpayer and promptly issue a notice if there is a mismatch in the income you have declared and your investments and spending.

8.    Avoiding TDS by misusing Forms 15G and 15H

If the interest income on bank deposits exceeds 10,000 a year, the bank deducts TDS. You can avoid TDS by submitting Form 15G or 15H if you are not liable to tax. However, if you are trying to avoid tax liability, you can get a notice from the tax department. Submitting a wrong declaration can invite a penalty of 10,000. Splitting the deposits in different banks or branches to avoid TDS won't help as the PAN gives you away.

 

9.    Not mentioning PAN or quoting incorrect PAN

PAN is now mandatory for high-value transactions. If you do not submit it while making an investment or taking up a job, your income will be subjected to a higher TDS of 20%, instead of 10%. If the PAN is incorrect, you could even be slapped with a penalty of up to 10,000. The bigger problem of an incorrect PAN is that the TDS will not be credited to your account.

10. Not responding to notice from tax department

Don’t ignore the messages and notices from the tax department. If you do not respond, the interest and penalty keeps on increasing in case of any pending tax liability and the Income Tax Department will take a final decision; one sided & that may not be beneficial for you.