BackGovernment notifies corporate social responsibility rules
Govt clarifies that contributions to state govt funds and political parties won't be considered CSR
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New Delhi: The government on Thursday notified rules governing corporate social responsibility (CSR) under the new companies law, expanding the scope to include more activities but at the same time clarifying that contributions to state government funds and funding of political parties will not be considered CSR activities.
The rules expanded the definition of CSR activities to include preventive healthcare, sanitation, providing safe drinking water, protection of national heritage, rural development projects and measures to benefit armed forces veterans.
Promoting rural sports, nationally recognized sports, setting up homes and hostels for women, orphans and senior citizens and measures to reduce inequalities faced by socially and economically backward groups and support to technology incubators in academic institutions have also been included in the CSR ambit.
Under the new law, every company having a net worth of ₹ 500 crore or more or revenue above ₹ 1,000 crore or a net profit above ₹ 5 crore needs to spend at least 2% of the average net profits for the past three years on CSR activities.
The new rules clarified that the definition of net profit will not include dividend income received from another Indian company following the provisions of the companies law or from profits of its own overseas branches.
Corporate affairs minister Sachin Pilot said the rules have been finalized after extensive discussions with all stakeholders. The rules will come into effect from 1 April.
Analysts point out that the current rules are more comprehensive and remove any ambivalence in definitions but may force companies to realign their existing CSR activities to meet them.
Harinderjit Singh, a partner at Price Waterhouse, said in a note that the rules provide clarity for private limited companies.
“CSR rules have come as a relief for private limited companies where they need not appoint independent director for their CSR committee," Singh said. Also, if the company has only two directors, it needs to have only two directors on the CSR committee, he said.
The rules removed contributions to any state government fund as recognized CSR spending, probably to avoid likely misuse by state governments. The Chhattisgarh government last year had made it mandatory for firms operating in Chhattisgarh to deposit a small part of profits in the chief minister’s community development fund to meet their CSR obligations.
Promoting education, environment sustainability, gender equality and eradicating hunger, poverty and malnutrition are some of the other activities that will be considered CSR activities.
The final rules notified by the government will be applicable to both domestic companies and to foreign companies operating in India.
The CSR activities 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.
A company can also carry out CSR works through a registered trust or society or a separate company.
Also, the CSR spending will have to be undertaken in India and should not benefit any employees of the company.
PTI contributed to this story.
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