scorecardresearch
Follow Us:
Sunday, September 26, 2021

Explained: Govt’s clarifications on CSR expenditure; what impact will these have?

Companies with a minimum net worth of Rs 500 crore, turnover of Rs 1,000 crore, or net profit of Rs 5 crore are required to spend at least 2 per cent of their average profit for the previous three years on CSR activities every year.

Written by Karunjit Singh , Edited by Explained Desk | New Delhi |
Updated: August 29, 2021 10:01:45 pm
CSR rules, CSR expenditure rules, CSR new rules, CSR expenditure, Indian ExpressThe Ministry of Corporate Affairs has clarified that companies have to ensure that funds transferred to implementing agencies are actually utilised for them to be counted towards mandatory CSR expenditure. (Illustration: Mithun Chakraborty)

The Ministry of Corporate Affairs has clarified that excess Corporate Social Responsibility (CSR) expenditure prior to FY21 cannot be set off against future CSR expenditure requirements and that corporate donations to government schemes cannot be counted as CSR. We examine these and other clarifications by the government in a circular answering frequently asked questions on CSR.

What is the clarification on setting off of excess CSR expenditure?

Companies with a minimum net worth of Rs 500 crore, turnover of Rs 1,000 crore, or net profit of Rs 5 crore are required to spend at least 2 per cent of their average profit for the previous three years on CSR activities every year. The ministry has clarified that any CSR expenditure in excess of the mandated 2 per cent expenditure can be set off against mandatory CSR expenditure in the three subsequent fiscals.

Notably however, excess expenditure prior to FY21 is not eligible to be set off against future CSR requirements. The government had in May notified that donations made to the PM CARES fund on March 31, 2020 in excess of CSR requirements could be set off against CSR expenditure requirements for FY21.

An expert who did not wish to be quoted said that this could be seen as a “preferential treatment“ for the PM CARES Fund noting that the government should consider allowing excess expenditure on any permitted CSR activity in FY20 to be set off for FY21.

Neeraj Dubey, partner at law firm Singh and Associates however said “that circular was issued by the government to attract extra funds towards addressing the crisis that India was witnessing,” noting that this could be considered a permitted exception to CSR rules.

What are other key clarifications?

The ministry has also clarified that companies have to ensure that funds transferred to implementing agencies are actually utilised for them to be counted towards mandatory CSR expenditure.

Madhu Sudan Kankani, partner at Deloitte India, said “simply transferring money to NGOs may not be enough to meet the requirement,” noting that the amount transferred to such implementing agencies had to be utilised to meet CSR expenditure requirements.

The circular also clarifies that funding government schemes cannot be counted as CSR, noting that “CSR should not be interpreted as a source of financing the resource gaps in government schemes.”

📣 JOIN NOW 📣: The Express Explained Telegram Channel

An expert who did not wish to be quoted said that the clarification may impact donations to state government schemes which are often done for the sake of managing relationships with the government by reducing the “additional incentive” of allowing it to be counted towards mandatory CSR expenditure.

Newsletter | Click to get the day’s best explainers in your inbox

The FAQs also clarify that companies are required to transfer any unspent CSR funds to a separate bank account which cannot be used for business purposes.

Experts noted that some companies had previously interpreted the requirement of keeping unspent CSR funds in a separate account to only require that these funds be mentioned separately on the books of accounts. The clarification will also mean that any interest generated on unspent CSR funds will also have to be spent on CSR activities.

📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines

For all the latest Explained News, download Indian Express App.

  • The Indian Express website has been rated GREEN for its credibility and trustworthiness by Newsguard, a global service that rates news sources for their journalistic standards.
0 Comment(s) *
* The moderation of comments is automated and not cleared manually by indianexpress.com.
Advertisement
Advertisement
Advertisement
Advertisement