Further Analysis of CSR Provisions 2021

We had written a brief on the recent changes in CSR requirements by Companies here. We are now delving on a few other details of such changes in light of the Companies (Amendment) Act 2020.

Set-off Provisions

If the company spends an amount exceeding the required 2% of average net profits for the 3 immediately preceding financial years, such excess amount may be set off against the requirement to spend in the immediate succeeding 3 financial years subject to the following conditions:

(i) Excess amount available for set off shall not include the surplus arising out of the CSR activities;

(ii) Board of Directors shall pass a resolution to that effect.

Consequence of Not Spending on CSR

If a company does not spend the amount as required to be spent under CSR provisions, the company shall be liable to the following as per the Companies (Amendment) Act 2020:

(i) Penalty of two times the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent CSR Account, as the case may be, or Rs. 1 crore, whichever is less; and (ii) Every officer of the company who is in default shall be liable to a penalty of 1/10th of the amount required to be transferred by the company to such Fund, or the Unspent CSR Account, as the case may be, or Rs. 2 lacs, whichever is less.

According to the amendments to CSR Rules 2021, until a fund is specified in Schedule VII for the purposes of section 135(5) and (6) of the Act, the unspent CSR amount, if any, shall be transferred by the company to any fund included in schedule VII of the Act.

Thus, the CSR liability of 2% of average profits, as applicable, may either be spent on CSR activities or transferred to a Fund as specified.

Requirement for CSR Committee

Where the amount to be spent by a company for CSR does not exceed Rs. 50 lakhs in a financial year, a CSR Committee is not required to be formed.

In such cases, the Board of Directors may fulfill the duties otherwise to be carried out by such Committee.

A resolution for dissolution of CSR Committee may be passed by the Board of Directors in its meeting.

Period of Keeping Books of Accounts

Companies Act, 2013: Section 128(5)

- A company is required to maintain its books of account and vouchers for a period of 8 years immediately preceding the current year.

- The Register and Index of Members must be maintained permanently.

- The copies of all Annual Returns and Certificates annexed thereto must be maintained for 8 years from date of filing with the ROC.

Income Tax Act, 1961: Rule 6F of the Income Tax Rules

- Assessees are required to preserve the specified books of account for a period of 6 years from the end of the relevant assessment year, i.e., for a total period of 8 previous years.

- Period of six years gets extended if the assessment is reopened u/s. 147, till the time assessment is completed.

- Transfer Pricing documents and information specified under Rule 10D must be maintained for a period of 8 years from the end of the relevant assessment year, i.e., for a total period of 10 previous years.

- In a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax has escaped assessment for any assessment year — 16 years from the end of relevant assessment year.

Goods & Services Tax: Section 36 of the CGST Act, 2017

- 6 years from the due date of furnishing of annual return, or

- 1 year after final disposal of such appeal or revision or proceedings or investigation

Amendment in CSR Provisions 2021

The Companies (Corporate Social Responsibility Policy) Rules 2014 have been amended by the Amendment Rules 2021 through a Notification to that effect dated 22-Jan-2021.

A few highlights from the Notification are reproduced below with a link to the detailed document.

Applicability of CSR Provisions (No Change)

CSR provisions of The Companies Act, 2013 are applicable to companies registered under The Companies Act, which satisfy any of the following conditions in any of the three preceding financial years.

a) Net Worth of Rs. 500 crore, or more; or

b) Turnover of Rs. 1000 crore, or more; or

c) Net profit of Rs. 5 crore, or more

Filing of Form CSR-1 by Not-for-Profit/Charitable Institutions, Trusts, Societies and Companies

With effect from 01-Apr-2021, every entity that carries out CSR activities shall register itself with the Central Government through an e-Form CSR-1. This requirement shall not affect CSR projects or programs approved prior to 01-Apr-2021.

The following entities would require such registration if they wish to be eligible to undertake CSR activities for companies.

a) Company established under section 8 of the Companies Act, 2013 with section 12A and section 80G registrations under the Income Tax Act, 1961.

b) Registered Public Trust with section 12A and section 80G registrations under the Income Tax Act, 1961.

c) Registered Society with section 12A and section 80G registrations under the Income Tax Act, 1961.

d) Company established under section 8 of the Companies Act, 2013 or Registered Trust or Registered Society established by the Central Government or State Government.

e) Entity established under an Act of Parliament or State Legislature.

The form seeks the following information:

(i) Type of Entity

(ii) Registration Number

(iii) Date of Incorporation

(iv) Address

(v) Email (verified through OTP)

(vi) PAN (copy to be attached as well)

(vii) Details of Directors, Board of Trustees with Designation, DIN/PAN and Email ID

(viii) Copy of Certificate of Registration

Format for Annual Report on CSR Activities to be included in the Board's Report for the Financial Year commencing on or after 1st April 2020

The Director's Report should have an annexure giving details of the CSR Activities undertaken during the year. The format of the report is given in the Notification linked below, and the contents are briefly listed as under.

GST Premises Verification through App by Tax Officials

An app called the "GST-PV" is being launched through which all the Tax Inspectors of the GST Department will conduct physical verification of the premises of taxpayers with their smartphones, using GPS geo-tagging, photo and video recording.

This is being done to collect evidence on registered entities with incorrect information of their premises, or no physical presence on their registered premises.

In light of the same, we recommend to all that the following precautions be taken with respect to your GST registrations.

1) Put up a board with your registered name and GSTIN at all the locations of your registration.

2) Register additional places of business on your registration certificate to ensure all locations are mentioned on it.

3) Put up your GST Registration Certificate at a prominent place inside your premises.

4) Maintain proper documentary records of all your GST transactions in computerised form or physical, as prescribed under the law.

Source

Changes in GST Input Tax Credit from 01-Jan-2021

ITC Maximum up to 105% of Available Credit in GSTR-2B

As per Rule 36(4) of the CGST Rules, the restriction of claim of Input Tax Credit (ITC) in respect of invoices or debit notes not furnished by the suppliers has now been reduced from 10% to 5% of the credit available in GSTR 2B.

Thus, it is reiterated to all registered persons and their accountants that to avail full input tax credit, ensure that all vendors upload the invoices in GSTR-1 and/or IFF and file the returns on time.

The GST Department may not allow ITC only on the basis of availability of invoice from the vendor, which may lead to dispute with the Department, and may also not be allowed by the GST Auditor at the time of filing of GSTR-9 and GSTR-9C for the year.

Communication with Defaulting Vendors

A registered person can communicate with its defaulting vendor through the GST portal itself, informing them of missing documents or shortcomings.

The person may access such facility by going to "Services" tab on the portal, and then selecting the "Communication Between Taxpayers" option under "User Services".

An Inbox and Outbox would also be available to track responses and follow ups.

We recommend that businesses use such facility where they feel that the loss on account of input tax credit due to vendor's default in filing returns may be high, and they would want to create a written trail to later seek their right to claim the credit with the department if the vendor continues to default.

Documents may also be allowed to be uploaded along with such notifications.

 

Further, the notification sent will also be intimated to the recipient's registered email ID and phone number.

Quarterly Return Monthly Payment (QRMP) in GST from 01-Jan-2021

The CBIC has introduced the Quarterly Return Filing and Monthly Payment of Taxes (QRMP) scheme under GST to help small taxpayers whose annual turnover is less than Rs. 5 crores. This scheme allows taxpayers to file their GSTR-3B on quarterly basis, but continuing to pay tax every month.

Eligibility for QRMP

Any registered person with annual aggregate turnover up to Rs. 5 crores in the preceding financial year may be allowed to file his GST returns on quarterly basis, with payment of tax on a monthly basis.

If the aggregate turnover exceeds Rs. 5 crore at any time during the year, the person would not be eligible for QRMP from the succeeding quarter.

Further, a person would be eligible for QRMP in any quarter only if the last return due as on date of availing such option has been filed. 

If a person has multiple registration numbers on the same PAN, they may choose to opt-in for QRMP for only a few out of all the registrations.

Features of QRMP

Any eligible person who has availed the option would have to:

a) furnish details of outward supply in Form GSTR-1 on a quarterly basis

b) facility to furnish invoices relating to the first and second months of such quarter through the Invoice Furnishing Facility (IFF) available on the portal latest by the 13th of the succeeding month. This has been enabled so that the customers of such persons can view the invoices in their GSTR-2A, GSTR-2B and avail input tax credit (ITC) thereon without having to wait for the quarterly GSTR-1 to be filed.

c) pay the GST for a month by the 25th of the succeeding month through challan in Form PMT-06. While generating such challan, the person should select the option "monthly payment for quarterly taxpayer"