Author: AYUSH B. GURAV, a Student of Maharashtra National Law University [MNLU], Mumbai.


The paper examines the intricate relationship between Corporate Social Responsibility (CSR) and tax practices within the business landscape, primarily focusing on India’s Companies Act. The text underscores how CSR serves as a cornerstone for ethical business operations, emphasizing its significance in fostering a strong rapport between corporations and society.

It delineates the ethical obligations imposed by Section 135 of the Companies Act 2013, mandating corporations to allocate a minimum of 2% of their net earnings toward CSR activities. However, the article elucidates how some businesses manipulate CSR funds to evade taxes, employing methods like under-reporting income, overstating deductions, and misusing trusts or consulting firms.

While tax evasion through CSR carries legal implications and tarnishes reputations, the landscape witnesses a shift towards tax avoidance. This legal yet morally contentious practice exploits gaps in tax laws, impacting CSR allocations. Case studies involving NALCO, SAIL, and the PM Cares Fund illustrate misdirection and misuse of CSR funds, raising ethical concerns.

To address these challenges, recommendations range from stricter oversight and lowered tax rates to curbing duplication in NGO operations. Understanding this complex interplay between CSR, taxation, and ethical responsibility becomes imperative for shaping transparent, accountable corporate practices, essential for sustainable development and societal welfare.

Keywords: CSR, Tax Evasion, Tax Avoidance, Corporate Governance, Fiscal Responsibility. 


In the pursuit of maximizing profits, companies are increasingly urged to integrate sustainable practices, with taxation emerging as a tangible avenue to fulfill societal obligations. Recent studies underscore a worrying correlation between tax avoidance/evasion and issues of corporate governance and social responsibility, spotlighting global instances where multinational corporations engage in such activities.

Corporate social responsibility (CSR), while not legally mandated, transcends typical business obligations, nurturing a vital link between a company and its clientele. India notably made CSR mandatory for businesses under Section 135 of the Companies Act 2013, mandating a minimum allocation of 2% of annual net earnings to CSR expenses for various corporate entities.

CSR stands as a critical driver of a company’s success and longevity, amplifying performance while directly shaping its reputation. While shareholders seek financial gains, sustainable profits stem from impeccable operations and delivering goods/services beneficial to society. Prioritizing society’s welfare becomes pivotal for businesses aiming for sustained profitability.

Paying taxes contributes to societal development and is viewed as a facet of CSR. However, in India, businesses divert funds meant for CSR toward tax-deductible initiatives under provisions of the Income Tax Act of 1961, leading to tax evasion by exploiting CSR as a guise despite its legal implications. This contradicts the essence of CSR, undermining the intended societal contributions.

  1. Corporate Social Responsibility (CSR):

Section 135 addresses Corporate Social Responsibility (CSR) obligations for companies operating within the country. It emphasizes the duty incumbent upon businesses operating in India toward both the environment and society. Historically, this responsibility rested with the government, but now it’s mandated that corporations independently fulfill these obligations. The scope of CSR is vast and not limited to a definitive list; it encompasses various aspects. CSR activities include projects or programs aligned with the subjects listed in Schedule 7 of the Act, notably outlined in Annexure A. Additionally, initiatives carried out by a company’s board of directors in response to the CSR committee’s recommendations, following the company’s declared CSR policy, are considered part of CSR, provided that said policy covers subjects listed in Schedule 7, particularly in Annexure A.

  1. Evading CSR Obligations:

Corporations often evade CSR responsibilities by:

  1. Weak disclosure practices to avoid appropriate CSR spending.
  2. Lack of transparency in reporting CSR spending to minimize expenditure on CSR projects.
  3. Misrepresentation of spent amounts by CSR consulting firms, inflating invoices to claim higher spending than actual.
  4. Challenges in Implementing CSR Regulations:

Despite attempts like the Companies Bill, 2019, aiming for transparency and accountability by mandating the transfer of unspent CSR funds to government accounts, controversies and implementation issues hinder its effectiveness.

The complex relationship between CSR, tax evasion, and regulatory loopholes underscores the need for stricter oversight and transparent practices to ensure that CSR obligations are met and tax evasion is curbed effectively.

  1. Tax Evasion and CSR

Exploring the intricate link between CSR and tax evasion reveals a notable correlation: an increase in CSR often coincides with an upsurge in tax evasion. Within this relationship, various methods of tax evasion come to light, namely the Accounting Method, Trust Method, and Consulting Firms Method.

  1. Accounting Method
  1. Under-reporting income: Purposely reporting less income than received, reducing tax burdens. Often, real income isn’t accurately shown to avoid or minimize CSR obligations.
  2. Overstating Deductions: Claiming more deductions than legitimate, using fabricated bills or exaggerating expenses, leading to reduced tax payments.
  3. Illegal accounting schemes: Falsifying financial records to deceive stakeholders, exaggerating revenue, and misstating assets to reduce taxes, sometimes using false financial records.
  4. Trust Method

Transferring funds meant for CSR to charitable trusts, presenting these expenses as tax-deductible, despite being an illegal activity. Circulating CSR funds through trusts via legitimate sources like banks, misleadingly avoiding CSR and tax obligations.

  1. Consulting Firms Method

CSR consulting firms manipulate billing cycles, submitting inflated invoices for reimbursement, even when a fraction of the intended costs are spent. 

Instances like Bajaj Auto have obscured CSR spending and unspent amounts, failing to mention whether unspent CSR funds were carried over to the following year, a violation addressed in the Companies Bill, 2019.

  1. Consequences of CSR-Linked Tax Evasion:

The ramifications stemming from tax evasion via CSR fraud encompass various aspects as follows;

  1. Penalties: Those involved may face penalties as per the regulations outlined in the Companies Act and Taxation Act.
  2. Reputational Damage: Collaborating with fraudulent NGOs or CSR consulting firms poses significant risks to businesses or CSR foundations. This includes potential defamation, harm to brand image, and a tarnished reputation within the communities they serve and among stakeholders. CSR compliance often involves partnerships with NGOs, and misconduct can damage community perception and staff capacity.
  3. Customer Perception: Evading CSR obligations can diminish customers’ perceptions of a company or firm, impacting their trust and loyalty.
  4. Impact on Government Income: Evading CSR reduces contributions to the government treasury, impeding the country’s overall development and progress.
  5. Prevalence of Evaded CSR: Such practices perpetuate the prevalence of evaded CSR, resulting in a minimal actual impact from genuine CSR activities.

In the current landscape, tax evasion has become notably challenging due to stringent laws that mandate CSR activities. Specifically, the introduction of Schedule VII in 2019 delineates where CSR funds should be allocated for firms and companies. Consequently, evading taxes through CSR has become more complicated. Companies are compelled to adhere to Schedule VII of the Companies Act when allocating CSR funds, leaving fewer avenues for tax evasion.

However, despite these constraints, firms and companies still have an option: tax avoidance rather than tax evasion. The subsequent discussion will delve into the relationship between CSR and tax avoidance.

  1. Tax Avoidance and CSR

The concept of tax avoidance encompasses the legal strategies employed to minimize tax payments within the bounds of the law. Individuals and corporations often exploit loopholes in their country’s tax codes to achieve this. While tax avoidance itself is not punishable, severe penalties exist for under-reporting income or concealing it during investigations.

Distinguishing between tax avoidance and evasion is crucial. The former, though legal, has a fine line, especially concerning corporate practices. Legal cases, such as in McDowell & Co. Ltd. v. CTO, highlighted the need to assess whether a transaction serves as a mere tax-avoiding device, subject to judicial approval.

Further legal clarifications occurred in the Vodafone International Holding v. Union of India case, emphasizing that not all tax planning within legal boundaries is justifiable. In India, both corporations and individual taxpayers engage in tax avoidance practices, sometimes intersecting with Corporate Social Responsibility (CSR).

Interestingly, in India, the absence of an upper limit for CSR, although mandating a minimum of 2%, provides an avenue for entities to divert funds towards CSR to bolster profits rather than paying taxes. This strategic shift aligns with studies linking tax avoidance and evasion to corporate governance and social responsibility, evident in multinational corporations utilizing tactics like transfer pricing globally.

Nonetheless, the ethical aspects of tax avoidance have drawn scrutiny from NGOs and advocacy groups, revealing a lack of moral accountability among major corporations regarding tax payments. The intricate relationship between taxes, shareholder returns, and corporate profits accentuates the complexities within India’s corporate taxation system, particularly burdening emerging businesses.

The presence of tax havens globally exacerbates the challenges governments face, affecting international trade and governmental revenue. Discrepancies in tax evasion, CSR practices, and legal frameworks across different countries underline the need for robust systems emphasizing transparency and obligatory disclosures to deter ambiguous practices.

  1. Case Studies
  1. In the case involving NALCO: the National Aluminium Company, a key player in metal mining and electricity production, the Indian government holds a majority stake of 51.5%. In 2012, NALCO faced internal scrutiny when its own vigilance division raised concerns about the misuse of CSR funds. A complaint highlighted that 3 crore rupees earmarked for CSR initiatives were redirected to certain private colleges, notably Centurion University of Technology and Management (CUTM), established in 2010. This substantial donation to CUTM was ostensibly aimed at fostering a partnership to establish an IIT. Moreover, NALCO engaged CUTM to oversee an industrial technical institute (ITI) in the Marachamal area of Koraput by allocating 4.25 crores for the purpose. As per their agreement, the university assumed responsibility for all financial aspects relating to the ITI.
  2. SAIL CSR report findings: The Steel Authority of India Limited (SAIL), a major player in India’s steel production, predominantly owned by the Indian government, was the subject of a CSR report published by the CAG in 2011. This report delved into SAIL’s CSR endeavors spanning from 2004 to 2010, wherein the company allocated 2% of its net profit towards CSR initiatives. These efforts aimed to foster social development, offering complimentary healthcare, conducting medical camps, and extending various services to benefit society. SAIL’s commitment to societal welfare involved organizing medical camps that provided free healthcare, including medications. However, the CAG’s analysis unearthed a discrepancy: while SAIL allocated funds for medical facilities, only 18% of these funds were utilized for their intended purpose. Shockingly, a significant portion of these allocated funds—supposedly earmarked for medical camps—were diverted to activities beyond healthcare provisions. These diverted funds were channeled into public relations campaigns, diverging from the core objective of the medical camps. Furthermore, there were reports of expenses on helicopter rides for the steel minister, which appeared unrelated to the primary focus of healthcare provisions.
  3. PM Cares Fund Controversy: The PM Cares initiative, designed to aid in the battle against the COVID-19 pandemic, has brought to the forefront a concerning issue involving corporate social responsibility (CSR) funds. The Ministry of Corporate Affairs (MCA), through a gazette notification, modified Schedule VII of the Corporations Act, 2013. This alteration included corporate donations to PM Cares as part of companies’ CSR activities, while removing state assistance funds from the list.

While contributions to PM Cares qualify for tax exemptions and benefits under section 80G of the Income Tax Act of 1961, the controversy arises due to the existence of established state relief funds. Despite the availability of these state funds, the introduction of Section 135 diverts resources to the PM Cares fund, drawing criticism for potentially redirecting money meant for local welfare into an opaque entity.

The PM Cares fund, comprising 70% of its corpus from contributions totaling 21,000 crores by 38 public sector entities (PSUs), raises concerns. Rather than prudently managing public finances during challenging times, these PSUs engaged in a competitive race, seemingly driven by the allure of tax exemptions. This significant financial commitment from PSUs, with its accompanying tax benefits, invites speculation about potential motives tied to tax evasion.

  1. Satyam Scandal: In this instance, Satyam Computers-Service Limited, an Indian information technology services provider based in Hyderabad, became embroiled in a significant controversy. Their CEO, Ramalinga Raju, confessed to deceiving the company of R 7000 crores in 2009 by manipulating corporate accounts and inflating assets, including cash and bank balances. Subsequently, Tech Mahindra acquired a bulk of the company’s shares, leading to a rebranding as Mahindra Satyam.

Before this major corporate scandal unfolded, the IT department had issued a legal notice to the corporation. The notice stemmed from the denial of tax exemption requests amounting to 17 billion for the years spanning from 2003 to 2009. Despite possessing adequate funds to meet tax obligations, Satyam Computers opted to fabricate income tax returns and fabricate invoices, disregarding multiple warnings from the IT department. This deliberate choice not to fulfill tax responsibilities led to the characterization of their actions as tax evasion.

  1. The way forward Fiscal Responsibility Measures: 
  1. Decrease Tax Rates: Lowering tax rates can encourage corporations to either increase their tax contributions or channel funds into Corporate Social Responsibility (CSR) initiatives.
  2. Implement Stricter Oversight: Introducing more stringent regulations is imperative to monitor the financial activities of public trusts, ensuring transparency in money circulation, and imposing penalties for non-compliance.
  3. Establish Limits on CSR Expenditure: Setting a maximum threshold for CSR spending can serve as a deterrent against tax evasion practices.
  4. Combat Duplication in NGO Operations: Addressing the issue of NGOs establishing identical or resembling private entities for consultancy and support services to businesses requires diligent identification of legitimate implementing agencies.


In the intricate nexus between Corporate Social Responsibility (CSR), tax evasion, and tax avoidance, a complex interplay emerges, shaping corporate behavior and societal impact. The juxtaposition of legal obligations and ethical considerations, exemplified by various case studies, underscores the challenges and ramifications within India’s corporate landscape. While initiatives like the Companies Act and Schedule VII strive to regulate CSR expenditure, loopholes persist, fostering evasive practices. The blurred line between avoidance and evasion necessitates stringent oversight and clearer delineations in tax laws.

The convergence of CSR and tax obligations unveils the critical need for a more conscientious approach among corporations. Transparent reporting, stringent regulations, and ethical governance form the bedrock for fostering genuine societal impact and curbing unscrupulous practices. Balancing profitability with societal welfare demands a paradigm shift toward responsible fiscal conduct. Implementing fiscal responsibility measures, coupled with robust oversight and ethical guidelines, offers a promising path forward, aligning corporate success with meaningful societal contributions. Ultimately, a harmonious synergy between regulatory compliance, ethical conduct, and social accountability is imperative for sustainable, impactful corporate citizenship.


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  2. Akshaya Shri M. & Pranav, Tax Avoidance by Transnational Corporations: A Critical Legal Analysis, 2 INDIAN J.L. & LEGAL RSCH. 1 (2021). 
  3. Harjinder Singh & Divya S. Khurana, Judicial Attitude towards Tax Avoidance in India, 5 INDIAN J.L. & LEGAL RSCH. 1 (2023). 
  4. Manan Gupta, CSR, Tax Evasion and Avoidance in India, INT’l J.L. MGMT. & HUMAN. 1135 (2023).

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