Section 17(5)(fa): CSR Expenditure Is Now Blocked Credit

Section 17 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

CSR spending is compulsory. It is incurred by the business, out of business funds, under a statutory obligation. Every intuition says the credit should be available — and for six years the argument was genuinely open, with advance rulings landing on both sides.

Clause (fa) closed it.

Section 17(5)(fa), inserted by the Finance Act, 2023 and notified by Notification No. 28/2023-CT dated 31.07.2023 with effect from 01.10.2023, blocks credit on "goods or services or both received by a taxable person, which are used or intended to be used for activities relating to his obligations under corporate social responsibility referred to in section 135 of the Companies Act, 2013." It is prospective from 1 October 2023.

What was argued before

For credit. CSR is mandatory under s.135 of the Companies Act for companies meeting the net worth, turnover or net profit thresholds. Non-compliance carries penalties. Expenditure compelled by law, incurred to keep the company in good standing, is expenditure in the course or furtherance of business — and s.16(1) grants credit on that basis.

The Bombay High Court's reasoning in the income-tax context, and several GST advance rulings, supported this: an obligatory expenditure is not a gift or a donation.

Against credit. CSR is by definition not for the business — it is for the community. And s.17(5)(h) blocks credit on goods disposed of by way of gift, which is what much CSR delivery looks like: school equipment given to a school, medical supplies given to a clinic.

Advance rulings went both ways, sometimes on materially similar facts.

What clause (fa) does

It removes the argument entirely, for periods from 1 October 2023.

Three features of the drafting:

"Used or intended to be used." The block bites at the point of procurement, on intention, not only on actual use. A purchase made for a CSR project is blocked even if the project is later abandoned.

"Activities relating to his obligations." Wider than the CSR activity itself. Project management, consultancy, impact assessment, monitoring and reporting costs all relate to the CSR obligation.

"Referred to in section 135 of the Companies Act, 2013." The block is tied to the statutory obligation, not to social spending in general.

What is outside clause (fa)

Voluntary social spending by a company not covered by s.135. A company below the thresholds has no s.135 obligation, so expenditure it makes is not "relating to his obligations under corporate social responsibility referred to in section 135". Credit on such spending is not blocked by clause (fa) — though s.17(5)(h) may still block it as a gift, and the s.16(1) business-purpose test still has to be met.

CSR spending in excess of the 2% obligation. On the same reasoning, the excess is arguably not "relating to his obligations". This is a fine distinction and departments are unlikely to accept it readily, but it is available on the words.

Spending by a non-company. A partnership, LLP or trust has no s.135 obligation.

A company that implements CSR by supplying its own goods or services. Where the CSR activity is itself the supply of the company's product, the analysis is about the outward transaction rather than the inward credit.

Spending by an implementing agency. A Section 8 company or registered trust that receives CSR funds and carries out the activity is not discharging its own s.135 obligation. Its credit position is governed by the ordinary rules and by whether its own outward supplies are taxable or exempt.

Periods before 1 October 2023

The amendment is prospective. There is no retrospective clause equivalent to Explanation 2 in the construction provisions.

So for FY 2017-18 to the first half of FY 2023-24, the earlier debate still governs, and a taxpayer that took credit in those periods can:

• rely on the business-purpose argument under s.16(1), supported by the statutory compulsion in s.135;
• point to the insertion of clause (fa) itself as an indication that the block did not previously exist — a prospective amendment implies the position was otherwise before it;
• distinguish s.17(5)(h) where the CSR activity did not involve a gift of goods — construction of a facility, provision of a service, funding of an activity.

That last point is important. Where the CSR delivery was a service rather than a gift of goods, s.17(5)(h) does not apply on its terms.

Practical notes

• Tag CSR spend at the purchase order stage with a separate cost centre or project code, so the credit is never taken.
• Include the peripheral costs — consultancy, audit, impact assessment, monitoring — in the tagging.
• Where the company also makes voluntary social spending, keep it separately identified from the s.135 obligation.
• The blocked GST is a cost and forms part of the CSR expenditure for s.135 purposes.
• Do not capitalise and then attempt to claim. Section 16(3) will foreclose it. Section 16(3): depreciation on the tax component →
• For pre-October 2023 periods under audit, the earlier arguments remain available and should be pleaded.

Key takeaways

• Clause (fa) blocks credit on goods and services used for CSR obligations under s.135 of the Companies Act, 2013.
• In force from 1 October 2023, and prospective.
• It covers spending "used or intended to be used" and "activities relating to" the obligation — including peripheral costs.
• Voluntary social spending outside s.135 is not blocked by clause (fa), though other clauses may apply.
• Implementing agencies are not discharging their own s.135 obligation.
• For pre-October 2023 periods, the earlier business-purpose argument survives.

Read next

• Section 17(5)(h): Goods Lost, Stolen, Destroyed or Given Away
• Blocked ITC Under Section 17(5)
• Free Samples, Buy-One-Get-One and Promotional Goods
• Section 16(3): Depreciation on the Tax Component

Disclaimer: Positions stated as on 5 September 2026, based on the CGST Act as amended to 31 March 2026 (ICAI Bare Law, 12th edition) and the ICAI Handbook on Blocked Credit under GST (November 2025).