Though a new law has stipulated the portion of profits that companies must spend on Corporate Social Responsibility (CSR) every year, the discretion to choose the specific activities and causes to be funded will rest with corporate boards, Union Minister for Corporate Affairs Sachin Pilot said in New Delhi on Tuesday.
Under the new Companies Act, 2013, passed by Parliament in August 2013, profitable companies must spend every year at least 2 per cent of their average net profit over the preceding three years on CSR works. This mandatory CSR-spend rule will apply from fiscal 2014-15 onwards. Those companies that have a turnover of Rs. 1,000 crore or more or net worth of Rs. 500 crore or more or net profit of Rs. 5 crore or more will have to comply.
While the Ministry for Corporate Affairs has prescribed in the new law the quantum of spending companies must undertake on CSR, it may not distinguish between charity, religious donations and sustainable philanthropy models for the purpose of delineating what mandatory CSR spending is.
“It is for the board of a company to decide whether to allocate the mandatory CSR funds to a religious trust or philanthropic causes. The government would not like to say where they must spend. If the board of a company decides it wishes to contribute CSR funds to the Vaishno Devi trust so be it,” Mr. Pilot said. He was speaking at a function organised by the Shiv Nadar Foundation.
The reassurance from Mr. Pilot is likely to be received well in corporate circles. India's corporate sector has been less than enthusiastic about the CSR spending diktat. In September, Founder Chairman of software services exporter Wipro Azim Premji had said philanthropy cannot be forced upon. “My worry is that the stipulation should not become a tax at a later stage. Spending 2 per cent on CSR is a lot, especially for companies that are trying to scale up in these difficult times. It must not be imposed,” Mr. Premji had said speaking at an event in New Delhi. The philanthropist tech tycoon himself has donated 8.7 per cent from his personal stock holding in Wipro as endowment for the Azim Premji Foundation. He had further added, “They are trying to force something. It should be spontaneous.”
Shiv Nadar, Founder Chairman of HCL Technologies, however, said he supported the mandatory 2 per cent spending. The foundation has committed Rs. 3,000 crore to educational initiatives over the next five years.