Union Ministry of Corporate Affairs notified New CSR rules

Union Ministry of Corporate Affairs notified new Corporate Social Responsibility (CSR) rules for companies on 27 February 2014.  The new CSR rules will become effective from 1 April 2014.

The new rules give effect to Section 135 and Schedule VII of the Companies Act, 2013, which relate to CSR related spending by companies.
The new rules mandates that Companies having huge profits would have to spend at least 2 % of profits on the CSR activities which in turn would be used for the benefits of the society.

Companies having minimum of 500 crore rupees net worth or 5 crore rupees as net profit or 1000 crore rupees turnover are mandated to spend 2% on CSR activities. However, while undertaking net profit criteria, profits from overseas branches and dividends received from other companies in India will be excluded.

Provisions

  • Companies falling under ambit are required to spend 2 % of their 3 year average annual net profit on CSR activities in each financial year, beginning from the next fiscal year 2014-15.
  • Company has to declare its CSR policy. This policy should mention plans/ activities /programmes or projects. These works should not be a part of routine business activities.
  • Companies can undertake CSR activities as per the approval of the company’s board and decision of its CSR Committee in accordance with its CSR policy.
  • Rules also define the manner in which CSR committee should formulate and monitor CSR policy, role of board of directors.
  • A Company is permitted to collaborate with other companies in pursuing their CSR activities but they need to show their CSR reports separately.
  • Companies are permitted to spend only 5% of the total CSR expenditure for manpower required for CSR activities in a single financial year .The manpower would include company’s own personnel and those of the implementing agencies.
  • Company can also carry out CSR activities with a Society or a registered trust.
  • Surplus from CSR activities cannot become a part of the profit of the company.
  • Any type of contributions to any political party will not be treated as CSR activities.
  • Spending for the benefit of the company’s own employees also cannot be a part of CSR activity.
  • All CSR activities will have to be within India.
  • The new rules will be applicable to the foreign companies registered in India.

CSR activities included in Schedule VII

  • Protection of national heritage, art and culture which include restoration of buildings and sites of historical importance and works of art
  • Promotion and development of traditional arts and handicraft
  • Setting up public libraries
  • Setting up homes and hostels for orphans
  • Setting up old age homes
  • Setting up day care centres
  • Setting up of homes and hostels for women
  • Training to promote rural sports, nationally recognized sports, Olympic sports and paralympic sports
  • Contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government
  • Works to making safe drinking water available
  • Maintaining quality of soil, air and water
  • Conservation of natural resources
  • Ensuring ecological balance
  • Protection of flora and fauna, animal welfare, agro-forestry
  • Rural development projects
  • Livelihood enhancement projects
  • Promoting healthcare and sanitation
  • Measures for reducing inequalities faced by socially and economically backward groups
  • Efforts which benefit war widows, armed forces veterans and their dependents