As India Inc braces up for a mandatory social welfare spending regime, Corporate Affairs Minister Sachin Pilot has asked the companies to desist from spending on profit-earning activities to meet these norms.
While he is open to the idea of the companies getting some tax benefits for CSR (Corporate Social Responsibility) spending, the minister has said that it would be against the "letter and spirit" of the new requirement if such activities are seen as yet another avenue for earning commercial profits.
The new Companies Bill, in the process of being notified into a law, requires certain class of companies to shell out at least 2 per cent of three-year average annual profit for CSR activities. The bill has got the President's assent.
As they wait for new rules to take effect, many firms have sought to know whether the money spent on education, healthcare and other welfare related ventures of group entities would qualify for the mandatory CSR spending.
Asserting that CSR spending should not be seen as profit- making opportunity, Pilot told PTI that such activities should bring smiles to people, rather than profits to the company.
When asked whether profitable ventures can be considered as part of CSR, the minister said: "Individually, I believe that it is not the right way to view the concept of CSR".
However, the final decision of what constitutes a CSR would be decided by the committee of the board constituted by the concerned company in that regard, the minister said.
"CSR should be viewed as something that you are doing - whether through cash or or kind, or man-hours, or anything else - to bring smiles to the people's faces and not for your EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation)," Pilot said.
The whole purpose of this innovative legislation to involve corporates into the society's welfare would be defeated if they view CSR spending as "profit making opportunities", he added.
While finer details would emerge after the specific rules for various clauses of the new Companies Bill are formulated, the CSR norms would be applicable to companies having either net worth of Rs 500 crore or more; turnover