Govt notifies rules for 2 pct mandatory CSR spending from profits
PTI | New Delhi | Updated: Feb 27 2014, 19:04 IST
PTI | New Delhi | Updated: Feb 27 2014, 19:04 IST
Much awaited rules for the new 'corporate social responsibility' regime were notified today, under which companies with sizable businesses would need to spend minimum 2 per cent of net profit for benefit of society.
Listing out the permitted CSR activities, the government said that they need to be undertaken as per approval of the company's board in accordance with its CSR Policy and the decision of its CSR Committee.
The CSR rules will take effect from April 1, as part of the new Companies Act. They will apply to the companies with at least Rs 5 crore net profit, or Rs 1,000 crore turnover or Rs 500 crore net worth.
Such companies will need to spend 2 per cent of their three-year average annual net profit on CSR activities in each financial year, beginning the next fiscal, 2014-15.
For the purpose of deciding the CSR spending eligibility of a company, profit from overseas branches and dividend received from other companies in India will be excluded from the net profit criteria.
Besides, contributions made "directly or indirectly" to any political party have been excluded from CSR ambit.
The CSR policy of a company should also specify that "surplus arising out of the CSR projects or programmes or activities shall not form part of the business profit of a company".
A company can also carry out CSR works through a registered trust or society or a separate company.
As per the rules, a company may also collaborate with other companies for CSR activities, provided they have to separately report about spending on such projects programmes.
"The CSR activities shall be undertaken by the company, as per its stated CSR policy, as projects or programmes or activities (either new or ongoing), excluding activities undertaken in pursuance of its normal course of business", as per the notification by the Corporate Affairs Ministry.
In an official release, Corporate Affairs Minister Sachin Pilot said the rules have been finalised after extensive consultations with all stakeholders.
"The rules provide for the manner in which CSR Committee shall formulate and monitor the CSR Policy, manner of undertaking CSR activities, role of the board of directors therein and format of disclosure of such activities in the board's report," Pilot said.
A wide range of activities including livelihood enhancement projects and steps for the benefit of armed forces veterans have been brought under the CSR ambit.
When it comes to having manpower for CSR works, the government has said that companies can spend only up to 5 per cent of total CSR expenditure for them in a single financial year. This would be applicable for own personnel as well as those of their implementing agencies.
To ensure transparency, companies carrying out CSR activities have to display works on their respective websites.
Among other activities, livelihood enhancement and rural development projects, promoting preventive health care and sanitation as well as making safe drinking water available would be considered as CSR activities.
Working towards protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art, setting up public libraries, promotion and development of traditional arts and handicrafts would also come under CSR ambit.
Various activities aimed at reducing inequalities faced by socially and economically backward groups have been included.
Measures for the benefit of armed forces veterans, war widows and their dependents, setting up homes and hostels for women and orphans, setting up of old age homes, day care centres and such other facilities for senior citizens would be considered as CSR work.
Other CSR activities would be ensuring ecological balance, protection of flora and fauna, animal welfare, agro- forestry, conservation of natural resources and maintaining quality of soil, air and water.
Training to promote rural sports, nationally recognised sports, paralympic sports and Olympic sports, contributions or funds provided to technology incubators located within academic institutions which are approved by the central government would also be CSR.
Providing clarity on CSR spending, the government has said that it would include "all expenditure including contribution to corpus, or on projects or programmes related to CSR activities approved by the board on the recommendation of its CSR committee".
However, it would exclude any expenditure on an item that is not in conformity with activities that fall within the purview of Schedule VII of the Companies Act, 2013. CSR comes under this Schedule.
The Corporate Affairs Ministry had also approached the Finance Ministry for tax benefits on CSR spending by companies. However, the exact status of the proposal could not be immediately ascertained.
Consultancy KPMG in India's Technical Director (Sustainability) Santhosh Jayaram said the CSR rules have answered many questions the companies had.
"The time taken for release of the rules is justified by the clarity the rules have brought out in comparison to the draft rules... The rule clearly raises the governance of CSR and brings in more transparency," he said in a statement.
Clarification of applicability to foreign companies and the clarity on what qualifies CSR expenditure are among the highlights, he added.
The CSR activities will have to be within India, and the new rules will also apply to foreign companies registered here. However, funds given to political parties and the money spent for the benefit of the company's own employees (and their families) will not count as CSR.
Notifications have been issued for Section 135 and Schedule VII of the Companies Act, 2013 that relate to CSR spending by companies.
Listing out the permitted CSR activities, the government said that they need to be undertaken as per approval of the company's board in accordance with its CSR Policy and the decision of its CSR Committee.
The CSR rules will take effect from April 1, as part of the new Companies Act. They will apply to the companies with at least Rs 5 crore net profit, or Rs 1,000 crore turnover or Rs 500 crore net worth.
Such companies will need to spend 2 per cent of their three-year average annual net profit on CSR activities in each financial year, beginning the next fiscal, 2014-15.
For the purpose of deciding the CSR spending eligibility of a company, profit from overseas branches and dividend received from other companies in India will be excluded from the net profit criteria.
Besides, contributions made "directly or indirectly" to any political party have been excluded from CSR ambit.
The CSR policy of a company should also specify that "surplus arising out of the CSR projects or programmes or activities shall not form part of the business profit of a company".
A company can also carry out CSR works through a registered trust or society or a separate company.
As per the rules, a company may also collaborate with other companies for CSR activities, provided they have to separately report about spending on such projects programmes.
"The CSR activities shall be undertaken by the company, as per its stated CSR policy, as projects or programmes or activities (either new or ongoing), excluding activities undertaken in pursuance of its normal course of business", as per the notification by the Corporate Affairs Ministry.
In an official release, Corporate Affairs Minister Sachin Pilot said the rules have been finalised after extensive consultations with all stakeholders.
"The rules provide for the manner in which CSR Committee shall formulate and monitor the CSR Policy, manner of undertaking CSR activities, role of the board of directors therein and format of disclosure of such activities in the board's report," Pilot said.
A wide range of activities including livelihood enhancement projects and steps for the benefit of armed forces veterans have been brought under the CSR ambit.
When it comes to having manpower for CSR works, the government has said that companies can spend only up to 5 per cent of total CSR expenditure for them in a single financial year. This would be applicable for own personnel as well as those of their implementing agencies.
To ensure transparency, companies carrying out CSR activities have to display works on their respective websites.
Among other activities, livelihood enhancement and rural development projects, promoting preventive health care and sanitation as well as making safe drinking water available would be considered as CSR activities.
Working towards protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art, setting up public libraries, promotion and development of traditional arts and handicrafts would also come under CSR ambit.
Various activities aimed at reducing inequalities faced by socially and economically backward groups have been included.
Measures for the benefit of armed forces veterans, war widows and their dependents, setting up homes and hostels for women and orphans, setting up of old age homes, day care centres and such other facilities for senior citizens would be considered as CSR work.
Other CSR activities would be ensuring ecological balance, protection of flora and fauna, animal welfare, agro- forestry, conservation of natural resources and maintaining quality of soil, air and water.
Training to promote rural sports, nationally recognised sports, paralympic sports and Olympic sports, contributions or funds provided to technology incubators located within academic institutions which are approved by the central government would also be CSR.
Providing clarity on CSR spending, the government has said that it would include "all expenditure including contribution to corpus, or on projects or programmes related to CSR activities approved by the board on the recommendation of its CSR committee".
However, it would exclude any expenditure on an item that is not in conformity with activities that fall within the purview of Schedule VII of the Companies Act, 2013. CSR comes under this Schedule.
The Corporate Affairs Ministry had also approached the Finance Ministry for tax benefits on CSR spending by companies. However, the exact status of the proposal could not be immediately ascertained.
Consultancy KPMG in India's Technical Director (Sustainability) Santhosh Jayaram said the CSR rules have answered many questions the companies had.
"The time taken for release of the rules is justified by the clarity the rules have brought out in comparison to the draft rules... The rule clearly raises the governance of CSR and brings in more transparency," he said in a statement.
Clarification of applicability to foreign companies and the clarity on what qualifies CSR expenditure are among the highlights, he added.
The CSR activities will have to be within India, and the new rules will also apply to foreign companies registered here. However, funds given to political parties and the money spent for the benefit of the company's own employees (and their families) will not count as CSR.
Notifications have been issued for Section 135 and Schedule VII of the Companies Act, 2013 that relate to CSR spending by companies.
http://www.financialexpress.com/news/govt-notifies-rules-for-2-pct-mandatory-csr-spending-from-profits/1229956/0
