The CSR committee to be constituted under the new companies Act, 2013, shall prepare the CSR policy of the company and would specify the projects and programmes that are to be undertaken. It would also specify modalities of execution in the areas chosen and implementation schedules for the same.

These are among the important clarifications that have been brought by the ministry of corporate affairs (MCA) by the way of rules to the new companies Act, 2013. The new companies law, which was recently passed by parliament and also got the president's assent, will replace the current companies Act, 1956 once the rules are notified. The ministry has asked stakeholders, including the public, to respond to the first set of draft rules by October 8.

The draft rules explain that ‘net profit’ would mean net profit before tax as per books of accounts and shall not include profits arising from branches outside India. Also, 2% CSR spending would be computed as 2% of the average net profits made by the company during every block of three years. For the purpose of first CSR reporting the net profit shall mean average of the annual net profit of the preceding three financial years ending on or before March 31, 2014. The reporting of this would be done on an annual basis commencing from FY 2014-15. Also, the tax treatment of CSR spend will be in accordance with the IT Act.

It also says that CSR activities may generally be conducted as projects or programmes (either new or ongoing) excluding activities undertaken in pursuance of the normal course of business of a company. And CSR projects/programmes of a company may also focus on integrating business models with social and environmental priorities and processes in order to create shared value. The CSR policy of the company should provide that surplus arising out of the CSR activity will not be part of business profits of a company.

The CSR Policy would specify that the corpus would include 2% of the average net profits, any income arising there from and surplus arising out of CSR activities.

It also says that the CSR committee shall prepare a transparent monitoring mechanism for ensuring implementation of the projects or programmes proposed to be undertaken by the company. A company may also implement its CSR programmes through trusts, societies, or section 8 companies operating in India, which are not set up by the company itself. Such spends may be included as part of its prescribed CSR spend only if such organizations have an established track record of at least three years in carrying on activities in related areas.

Companies can also collaborate or pool resources with other companies to undertake CSR activities and any expenditure incurred on such collaborative efforts would qualify for computing the CSR spending.

But activities which are exclusively for the benefit of employees of the company or their family members shall not be considered as CSR activity. All companies falling under the provision of section 135 (1) of the Act shall report the details of their CSR initiatives in the directors’ report and in the company’s website.