MUMBAI: Companies that donated equipment to the government during the Covid-19 crisis will likely be denied the benefit of input tax credit under the goods and services tax framework.

Tata Sons, PepsiCo, Flipkart, Walmart, Vivo India, Larsen & Toubro and TikTok, among others, came forward to donate ventilators, personal protection equipment, masks, medical gowns and testing kits.

Tax experts said that as the GST framework stands today, equipment and goods bought and donated won’t get any tax credit for purchase side GST. Input tax credit is not available on goods that are stolen, lost, destroyed or distributed as free samples.

In this case, two provisions are applicable — one, denying credit while giving gifts, and the other, an advance ruling from Kerala that says donations qualify as gifts and hence, no input credit will be available.

“A tax cost on philanthropic activities could nip them in the bud and in the current scenario, there is an immediate need for relaxing the provisions of the GST law to erase tax costs on similar acts of kindness,” said Abhishek Jain, tax partner at EY. “Also, given the different schools of thought on the credit eligibility/GST applicability on these donations, the government should consider issuing an explicit clarification to help businesses plan donations better and avoid litigation.”

Industry experts said many companies bought these products for donation and sought input tax credit. Some have reached out to the government for a clarification on input credit for donations, but no action has been taken till now.

MS Mani, partner, Deloitte India, said, “There is a need for clear regulations permitting input tax credits on goods donated to organisations which are engaged in providing assistance in the pandemic. This is necessary as we have not seen any GST exemption on such supplies, which leads to an increase in costs for organisations that would like to donate goods on humanitarian grounds.” Tax experts said even some companies that make goods such as masks and testing kits and donated them may not be able to claim tax credit.

People aware of the matter said input tax credit on these goods may be allowed through a clarification, but not on all corporate social responsibility activities.


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