CSR via Trusts and Form 10BE – Legality of 80G Claims, Income Tax

[Ramanathan Seshan]

Dear Experts,

Many companies outsource their CSR activities to implementing agencies or trusts by way of donations. These agencies then carry out CSR projects on behalf of the companies and issue donation receipts along with Form 10BE. However, Section 80G of the Income Tax Act clearly states that deductions are not allowed for CSR expenditures. In such cases, how are companies managing to claim these deductions?

Regards,

S Ram

Posts / Replies

[DR.MARIAPPAN GOVINDARAJAN]

The expenses incurred for CSR is not deductible from the income.  It is an expenditure not allowed for deduction.

[Ramanathan Seshan]

Dear sir,

Thank you for your quick response.

Regards,

S Ram

[YAGAY andSUN]

This is a critical compliance issue under the Income Tax Act, 1961, and here's how it should be understood from a legal and tax standpoint:

✅ Legal Position: CSR Expenditure Not Eligible for 80G Deduction

Section 80G(2)(iiihk) of the Income Tax Act read with Explanation 2 to Section 37(1) and relevant CBDT clarifications clearly states that any expenditure incurred by an assessee on activities relating to Corporate Social Responsibility (CSR) under Section 135 of the Companies Act shall not be deemed to be an expenditure incurred for the purpose of business or profession, and cannot be claimed as a deduction under Section 80G or any other section (like 35AC, 35(1)(ii)).

This was further clarified in:

• CBDT Circular No. 01/2023 dated 5 January 2023, and

• Rule 18AB(6) requiring a statement of donations eligible under 80G, excluding CSR-funded activities.

❌ How Are Companies Claiming 80G Deduction? (And Why It’s Improper)

In some cases, companies make donations to trusts or NGOs that are eligible under Section 80G, and receive:

• A donation receipt from the trust/NGO,

• Form 10BE, which is required for 80G deduction claims.

However, if the payment is made to fulfill CSR obligations, then:

• Such expenditure is categorically disqualified for 80G deduction, even if the implementing agency is 80G registered.

• Claiming deduction based on 10BE alone without checking CSR link is not legally valid, and may result in disallowance on assessment and penalties for incorrect return filing.

In practice, some companies misclassify the CSR donation as a voluntary contribution rather than CSR obligation. This is risky, as the CSR reporting under the Companies Act (via MCA Form CSR-2) would reveal the actual intent of the donation.

🔍 Conclusion

➡️ No deduction under Section 80G can be claimed for contributions that are made as part of CSR obligations, even if routed through 80G-registered trusts. Companies managing to claim these deductions are doing so in potential contravention of explicit statutory provisions, and such claims may not withstand tax scrutiny.

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