The new Companies Act, 2013 makes it mandatory for certain sections of profitable enterprises (public and private) to spend money on social welfare programmes
GN Bureau | February 27, 2014
Moving ahead with implementation of the new Companies Act, 2013, the government notified the detailed rules for the much-awaited corporate social responsibility (CSR) norms on Thursday.
According to the rules 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.
It also says that 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.
Replacing the nearly six-decade old regulations for corporate houses, 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.
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.
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 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.
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.
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.
The rules, which were finalised after the corporate affairs ministry examined over one lakh suggestions from various stakeholders, also mentions a draft format for the annual report on CSR activities to be included in the board's report.
More than 90 provisions that did not need detailed rules have already been notified.
The rule-making process for the Act saw extensive public consultations.
The minister of corporate affairs Sachin Pilot had earlier said that the rules are exhaustive and efforts have been made to include as much as possible, including health care and environment. Besides, a provision has been made under which any activity deemed as CSR by the board of the concerned company would qualify for the same, provided a disclosure is made about that for the benefit of shareholders.
In case the firms are unable to spend the money, they have to provide reasons and disclose the same.
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