CSR spend rules notified; political funding excluded

Written by fe Bureau | Updated: Feb 28 2014, 05:33am hrs
The government on Thursday notified the rules for the new corporate social responsibility (CSR) regime, which requires companies above a certain threshold to spend a minimum of 2% of their three-year average annual net profit on activities aimed at the betterment of society. The norm forms part of the new Companies Act.

The rules will be applicable from April 1 and will apply to companies with at least R5 crore net profit, or R1,000 crore turnover or R500 crore net worth.

The CSR activities will have to be within India, and the new rules will also apply to foreign companies registered in the country. 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.

The norms provide for a range of activities for companies to pursue as CSR activities, which includes projects aimed towards rural development, primary health care, provision for sanitation facilities, potable water, along with other activities meant for the benefit of socially and economically backward classes.

Lauding the CSR initiatives taken by companies to further upgrade the social infrastructure facilities available in rural and semi-urban areas of the country, finance minister P Chidambaram said that such initiatives have created significant infrastructure in socially relevant areas.

Corporate affairs minister Sachin Pilot said extensive consultations were held with all stakeholders before finalising the rules. The rules provide for the manner in which CSR committee shall formulate and monitor the CSR policy, manner of undertaking CSR activities, role of the board of directors therein and format of disclosure of such activities in the board's report, Pilot said.

Experts said that new CSR rules will bring in the much-needed clarity on what constitutes CSR activities and will also usher in transparency as the rules also provide for monitoring of these activities.

Santhosh Jayaram, technical director, sustainability, KPMG India, told FE that the CSR norms answers questions raised by a host of companies in the past. The highlight of the CSR rules is the clarification of applicability to foreign companies and the clarity on what qualifies as CSR expenditure. The clarity on the constitution of the CSR committee was also important, because of the limited time the companies have to constitute such committee.

He added: The CSR policy will now be different than the conventional policy statements companies have as the rule stipulates the requirement of listing the CSR projects/programmes and also the monitoring process for such programmes and this policy should be displayed in the companys website. The rule clearly raises the governance of CSR and brings in more transparency.