Corporate Social Responsibility (CSR) Rules Notified


Moving ahead with implementation of the new Companies Act, 2013, the Ministry of Corporate Affairs has notified the CSR rules notified the detailed rules for the much-awaited corporate social responsibility (CSR) norms on February 27, 2014. The CSR activities will have to be within India, and the new rules will also apply to foreign companies registered here. 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.
The overall annual CSR expenses are estimated to be around Rs 20,000 crore. The government has identified 10 major areas including education, gender equality, environment, national heritage and the prime minister’s  relief fund where corporate houses can spend to claim credit for the mandatory 2 percent CSR expenditure.
The CSR rules notified contains following major points:
(i) Any activity that benefits only the employees of the company and their families or any contribution directly or indirectly to a political party will not be considered as CSR.
(ii) The board of the company will decide its CSR activities approved by the CSR committee through a registered trust/society established by the company itself. If such a trust/society is not established by the company or its holding, it should have a track record of at least three years in undertaking such projects.
(iii) The new Act, which comes into force from the next fiscal, beginning April 1, 2014, makes it mandatory for certain sections of profitable enterprises (public and private) to spend money on social welfare programmes.
(iv) Companies having net worth of at least Rs 500 crore or having minimum turnover of Rs 500 crore or those with at least net profit of Rs 5 crore have to make undertake CSR spending.
(v) The notified rules allow companies to collaborate with other companies for undertaking projects on CSR in such a manner that CSR committees of respective companies are in a position to report separately on such projects.
(vi) Companies are also allowed to build CSR capacities of their own personnel and the implementing agencies through institutions with track records of at least three financial years but such expenditure should not exceed five percent of the total CSR expenditure of the company in one financial year.
(vii) An emphasis is also given to disclosing the CSR expenditure. The board will have to include an annual report on CSR from 2014-15 onwards. Following the board’s approval, the CSR policy will also have to be disclosed on the company’s website.
(viii) In case the firms are unable to spend the money, they have to provide reasons and disclose the same.
CSR is required only for very large companies. These can be of three types:
(i)Those with high net worth of Rs.500 crore or more.
(ii)Those with big turnover of Rs.1,000 crore or more.
(iii) Those with net profit of Rs. 5 crore or more.
Any company, which meets even one of the above conditions in any year is expected to spend on CSR. It does not matter whether the company is private or public.
 Purposes of CSR
The Companies Act 2013 expects all large companies to spend 2% of their profits on social good. This is a unique provision, the first anywhere in the world, and may well change the relationship between business and society in the decades to come. This innovation achieves several policy objectives with one stroke.
Firstly, foreign grants are now dwindling away – partly due to changes in Indian economy and partly due to a reinvigorated FCRA. CSR funds will provide the NGO sector
with much needed financial support. This means that NGOs will be able to continue bulk of their programs.
Secondly, CSR funds are easier to control than FCRA funds. Companies are unlikely to take up social programs which annoy their customers or challenge the Government.
Thirdly, it will bring NGOs and companies together. NGOs can sensitise companies on working with marginalised or rural communities. This will help companies market their products better. Companies can help strengthen management skills of NGOs. This can also get both to shed mutual distrust.
Fourthly, the Government can do all this at a very low cost, without levying a tax. At worst, it will lose only the tax revenue on CSR - about 30 paise for every rupee spent on CSR.
However, there is a hidden cost for the society. Governments are meant to regulate corporate behaviour. In practice, this mechanism fails quite often. Companies have become very good at co-opting governments and officials in their quest for projects and profits. Governments are also keen to bag industrial projects to generate employment and increase tax revenue. NGOs have provided a counterbalance against this. This bulwark will go once companies and NGOs also start working together.

Saturday, 01st Mar 2014, 08:29:51 AM

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