A janata curfew and a call to applaud those who have worked during these tough times may be a good way to test the restraint that Indian citizens have in dealing with the coronavirus. However, as the impact of Covid-19 starts showing on the financial statements of companies and the income of households, citizens and corporates will be expecting some monetary relief.
The Kerala government was quick to announce a ₹20,000-crore package that aims at ensuring that the State’s population is not short-changed because of a forced change of lifestyle due to Covid-19. If relief is to be given nationwide, the Companies Act and the Income Tax Act present plenty of opportunities.
The Ministry of Corporate Affairs (MCA) has recently sought comments on amendments proposed for the Corporate Social Responsibility (CSR) rules. The principal amendment is a statement that activities undertaken in pursuance of normal course of business of the company, any activity undertaken outside India, contribution of any amount directly or indirectly to any political party and activities that significantly benefit more than 25 per cent of the employees of the company, would not be considered to be a CSR activity. Profits received from abroad and dividends received from India would not be included in the calculation of net profit. A national unspent CSR fund is being proposed wherein all the unspent CSR funds will be parked for further utilisation is proposed.
Since these are only proposals, their impact would be felt only for the year ending March 31, 2021, by which time the coronavirus will hopefully be resigned to memory. Thankfully, the MCA has given a clarification on March 23 that any amount companies spend on Covid-19 would be considered as CSR activity, and the nature of the activity would be interpreted liberally. Companies that have not spent any monies on these activities can either be given a relaxation in meeting their CSR requirements or be given a deemed CSR benefit, based on some parameters such as salaries paid or manhours spent. For instance, it can be stated that paying 15 days’ salary for March 2020 would be considered to be a deemed CSR activity, which would be considered to be amount actually spent on CSR projects.
Cuts that heal
In view of the fact that the impact would be felt for some time to come, the MCA can also think of a reduction in the percentage of mandatory CSR. It is normal for companies to try and fulfil their CSR obligations in March — an early announcement regarding this can help.
Though CSR is a mandatory stipulation by law, the Income Tax Department does not consider CSR expenses to be allowable business expenditure. A one-time exception should be provided for the year ended March 31, 2020 to permit companies a 50 per cent tax deduction on expenditure incurred for CSR activities.
Taxpayers in the country have had to have a disrupted schedule due to the virus. Many taxpayers complete their tax deductible investments only in the months of January and February, which doesn’t leave them with much.
The government cannot announce a big-bag recovery project costing millions of dollars because its own bank balances are left wanting. This could be a good time to ask taxpayers to contribute to a “National Calamity Fund” and permit them a one-time tax deduction to the extent of their contribution. The Fund should be used only for recovery activities in the present or the future.
The writer is a chartered accountant