The new CSR rules, which would come into effect from April 1, 2014, mandate companies to spend at least 2% of their three-year average annual profit on social welfare activities.
The much-awaited rules for the new ‘corporate social responsibility’ (CSR) regime were notified on Thursday, under which companies with sizable businesses would need to spend a minimum 2 per cent of net profit for the benefit of the society.
The CSR activities will have to be within India, and the new rules will also apply to foreign companies registered here.
However, funds given to political parties and the money spent for the benefit of the company’s own employees (and their families) will not count as CSR.
Listing out the permitted CSR activities, the government said that they needed to be undertaken as per approval of the company’s board in accordance with its CSR Policy and the decision of its CSR Committee.
The CSR rules will take effect from April 1, as part of the new Companies Act. 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.
Such companies will need to spend 2 per cent of their three-year average annual net profit on CSR activities in each financial year, beginning the next fiscal, 2014-15.
For the purpose of deciding the CSR spending eligibility of a company, profit from overseas branches and dividend received from other companies in India will be excluded from the net profit criteria.
Besides, contributions made ‘directly or indirectly’ to any political party have been excluded from CSR ambit.
The CSR policy of a company should also specify that “surplus arising out of the CSR projects or programmes or activities shall not form part of the business profit of a company.’’
A company can also carry out CSR works through a registered trust or society or a separate company.
As per the rules, a company may also collaborate with other companies for CSR activities, provided they have to separately report about spending on such projects programmes.
“The CSR activities shall be undertaken by the company, as per its stated CSR policy, as projects or programmes or activities (either new or ongoing), excluding activities undertaken in pursuance of its normal course of business”, according to the notification by the Corporate Affairs Ministry.
In an official release, Corporate Affairs Minister Sachin Pilot said the rules had been finalised after extensive consultations with all stakeholders.
A wide range of activities, including livelihood enhancement projects and steps for the benefit of armed forces veterans have been brought under the CSR ambit.
When it comes to having manpower for CSR works, the government has said that companies can spend only up to 5 per cent of total CSR expenditure for them in a single financial year.
This would be applicable for own personnel as well as those of their implementing agencies.
Among other activities, livelihood enhancement and rural development projects, promoting preventive health care and sanitation as well as making safe drinking water available would be considered as CSR activities.