New Corporate Social Responsibility rules for companies notified by Union Ministry of Corporate Affairs

The Union Ministry of Corporate Affairs notified new Corporate Social Responsibility (CSR) rules for companies. They will apply to companies with at least Rs 5 crore net profit, or Rs.1,000 crore turnover or Rs.500 crore net worth. As part of the new Companies Act, these new CSR rules would come into effect from April 1, 2014.
Objective: For expanding the scope to include more activities but at the same time clarifying that contribution to state government funds and funding of political parties will not be considered CSR activities.
Excerpts of the actions that are considered as CSR activities:

  • Livelihood enhancement and rural development projects, promoting preventive health care and sanitation as well as making safe drinking water available, 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 and promotion and development of traditional arts and handicrafts.
  • To reduce inequalities faced by socially and economically backward groups.
  • 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.
  • Control 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 recognized sports, Paralympics sports and Olympic sports, contributions or funds provided to technology incubators located within academic institutions which are approved by the central government.

Provisions of new Corporate Social Responsibility (CSR) rules for companies:
The companies

  • Falling under range are required to spend 2 % of their 3 year average annual net profit on CSR activities in each financial year, beginning from the next fiscal year 2014-15.
  • Has to declare its CSR policy. This policy should mention plans/ activities /programmes or projects. These works should not be a part of routine business activities.
  • Can undertake CSR activities as per the approval of the company’s board and decision of its CSR Committee in accordance with its CSR policy.
  • Are permitted to spend only 5% of the total CSR expenditure for manpower required for CSR activities in a single financial year. The manpower would include company’s own personnel and those of the implementing agencies.
  • Can also carry out CSR activities with a Society or a registered trust.
  • Rules also define the manner in which CSR committee should formulate and monitor CSR policy, role of board of directors.
  • A Company is permitted to collaborate with other companies in pursuing their CSR activities but they need to show their CSR reports separately.
  • Surplus from CSR activities cannot become a part of the profit of the company.
  • Any type of contributions to any political party will not be treated as CSR activities.
  • Spending for the benefit of the company’s own employees also cannot be a part of CSR activity.
  • All CSR activities will have to be within India.
  • The new rules will be applicable to the foreign companies registered in India. 

Note: Notifications have been issued for Section 135 and Schedule VII of the Companies Act, 2013 that relate to CSR spending by companies.