The Corporate Affairs Ministry has amended the rules for Corporate Social Responsibility (CSR) expenditure by India Inc to allow companies to undertake multi-year projects, and also require that all CSR implementing agencies be registered with the government.
- All companies with a net worth of Rs 500 crore or more, a turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more, are required to spend 2 per cent of their average profits of the previous three years on CSR activities every year.
- The amended CSR rules allow companies to set off CSR expenditure above the required 2 per cent expenditure in any fiscal year against required expenditure for up to three financial years.
- There was ambiguity whether the rule would apply for expenditure undertaken prior to the amendment.
- A large number of companies conduct CSR expenditure through implementing agencies, but the new amendment restricts companies from authorising either a Section 8 company or a registered public charitable trust to conduct CSR projects on their behalf.
- A Section 8 company is a company registered with the purpose of promoting charitable causes, applies profits to promoting its objectives and is prohibited from distributing dividends to shareholders. Further, all such entities will have to be registered with the government by April 1.
- The change would impact CSR programmes of a number of large Indian companies that conduct projects through private trusts.
- The change would mean such private trusts would either have to be converted to registered public trusts, or stop acting as CSR implementing agencies “given that a sizeable amount of CSR is being contributed through their private trusts by many companies, including blue-chip companies.”