Learn why CSR spending is not eligible for GST Input Tax Credit. Understand legal provisions under CGST Act Section 17(5) and Companies Act Section 135.
CSR Is Not Considered “Used in Course or Furtherance of Business”
Section 16(1) of the CGST Act, 2017 allows ITC only when goods or services are used in the course or furtherance of business. CSR spending, however, serves a social obligation, not a direct business purpose.
The GST law emphasizes that activities not linked to generating taxable output supplies do not qualify for ITC. CSR’s primary intention is social welfare, not business promotion, which makes such expenses fall outside the scope of eligible ITC.
CSR Amounts to “Gift” or “Free Supply” – Blocked Under Section 17(5)
One of the strongest reasons for ITC ineligibility lies in Section 17(5) of the CGST Act, which blocks credit on:
- Goods disposed of by way of gift
- Goods given free of cost
Many CSR initiatives—donating equipment, distributing food, providing medical kits, or constructing community facilities—are treated as free supplies, even if required legally. Since such supplies do not involve consideration, they fall squarely within “gifts/free supplies,” and therefore, ITC is blocked.
CSR Is a Statutory Obligation Under Companies Act, Not a Business Expense
Under Section 135 of the Companies Act, CSR is a statutory requirement, not a voluntary business decision. Courts and departments have repeatedly noted that statutory obligations, unless directly linked to business operations, do not constitute business inputs.
CSR activities serve the larger social and environmental framework and do not directly contribute to creating taxable supplies. As a result, they fail the fundamental test of “business nexus” required under Section 16.
Judicial & Departmental Position
While a few advance rulings (AARs) have disagreed, the most consistent view remains that CSR spending is not eligible for ITC because:
- It is a mandatory expenditure imposed by the Companies Act, not a business decision.
- Goods/services used for CSR are not business inputs but support social responsibility.
- They commonly fall under blocked credits as gifts/free supplies.
Due to these reasons, tax authorities generally deny ITC on CSR-related purchases.
Conclusion
CSR is undoubtedly crucial for fulfilling social obligations and building corporate goodwill. However, from a tax perspective, CSR expenses do not qualify as business inputs, and thus ITC is not admissible under Sections 16 & 17(5) of the CGST Act. Companies must therefore plan CSR budgets with the understanding that GST paid on CSR spending becomes a cost, not a recoverable tax credit.
You can also refer this: Complete Guide to GST ITC Rules 2025: Eligibility, Restrictions & Common Mistakes