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Expert panel on CSR: Make non-compliance civil offence; spending must be tax deductible

Under the Companies Act, 2013, certain classes of profitable entities are required to spend at least two per cent of their three-year annual average net profit towards Corporate Social Responsibility (CSR) in a particular financial year.

By: ENS Economic Bureau | New Delhi | Updated: August 14, 2019 3:02:49 am
For companies failing to meet CSR norms, the changes to the law also provide for a fine of Rs 50,000 to Rs 25 lakh and a jail term of up to three years for defaulting officials of companies.

A government-constituted high-level committee on Tuesday recommended making expenditure on CSR tax deductible as well as treating non-compliance with CSR requirements a civil offence under the companies law.

Under the Companies Act, 2013, certain classes of profitable entities are required to spend at least two per cent of their three-year annual average net profit towards Corporate Social Responsibility (CSR) in a particular financial year.

The high-level panel, headed by Corporate Affairs Secretary Injeti Srinivas, has stressed that CSR expenditure should not be treated as a means of resource gap funding for government schemes. It suggested that unspent CSR balance should be allowed to be carried forward for three-five years.

On Tuesday, Srinivas presented the report to Finance and Corporate Affairs Minister Nirmala Sitharaman.

The panel recommended introduction of “impact assessment studies for CSR obligation of Rs 5 crore or more, and registration of implementation agencies” on the Ministry of Corporate Affairs (MCA) portal.

According to a Finance Ministry statement, the other recommendations include developing a CSR exchange portal to connect contributors, beneficiaries and agencies; allowing CSR in social benefit bonds; promoting social impact companies; and third party assessment of major CSR projects.

Companies having CSR prescribed amount below Rs 50 lakh can be exempted from the need of constituting a CSR committee, the committee has suggested.

“The committee discourages passive contribution of CSR into different funds included in Schedule VII of the Act.  It has emphasised on CSR spending as a board driven process to provide innovative technology-based solutions for social problems,” it said.

The panel was set up in October 2018 under the chairmanship of Srinivas to review the existing CSR framework and make recommendations on strengthening the CSR ecosystem, including monitoring implementation and evaluation of outcomes.

Tata Sons chairman N Chandrasekaran, Bain Capital Private Equity managing director Amit Chandra, former Additional Solicitor General of India BS Narasimha, and Apollo Group executive vice chairperson Shobana Kamineni were among the panel’s members.

The panel’s recommendations come even as Parliament last month amended the Companies Act, specifying among other provisions that unspent CSR funds by companies should be transferred into an escrow account called the Unspent Corporate Social Responsibility Account, with the corpus to be utilised within three years of transfer.

The changes to the law also said that any unspent annual CSR funds must be transferred to one of the funds under Schedule 7 of the Companies Act such as the Prime Minister’s Relief Fund, within six months of the financial-year end.

For companies failing to meet CSR norms, the changes to the law also provide for a fine of Rs 50,000 to Rs 25 lakh and a jail term of up to three years for defaulting officials of companies.

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