Companies need to spend 2% on CSR activities: Govt

The government has issues a set of new rules for companies and corporate houses regarding their Corporate Social Responsibility (CSR). The new rules call for corporates and companies to spend a share of their income on social causes. The new notifications have been issued to give effect to Section 135 and Schedule VII of the Companies Act, 2013, which relate to CSR (Corporate Social Responsibility) related spending by companies. According to a statement issued by the government, the concerned rules have been finalised after extensive consultations with all stakeholders. Sachin Pilot, Minister for Corporate Affairs said that 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. 

The new rules have tried to ensure that corporates play an equal role in healthcare, sanitation, education, environment, sports and arts, etc. It is also learnt that under the new law, every company having a net worth of Rs.500 crore or more or revenue above Rs.1,000 crore or a net profit above Rs.5 crore needs to spend at least 2% of the average net profits for the past three years on CSR activities.

The new rules also clarify the definition of net profit which will not include dividend income received from another Indian company following the provisions of the companies law or from profits of its own overseas branches. The rules will come into effect from 1 April.

Experts have found the current rules comprehensive that try to remove any ambiguities in definitions. The rules are believed to force companies to realign their existing CSR activities.

Promoting education, environment sustainability, gender equality and eradicating hunger, poverty and malnutrition are some of the other activities that will be considered CSR activities.

The final rules notified by the government will be applicable to both domestic companies and to foreign companies operating in India.

The CSR activities need to be undertaken as per approval of the company's board in accordance with its CSR policy and the decision of its CSR committee.

The following important new activities have been included in Schedule VII:
(a) Promoting preventive health care and sanitation and making available safe drinking water;
(b) Setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups;
(c) Ensuring ecological balance, protection of flora and fauna, animal welfare, agro-forestry, conservation of natural resources and maintaining quality of soil, air and water;
(d)  Livelihood enhancement projects;
(e) Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional arts and handicrafts;
(f) Measures for the benefit of armed forces veterans, war widows and their dependents;
(g) Training to promote rural sports, nationally recognised sports, paralympic sports and Olympic sports;
(h) Contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government;
(i)   Rural development projects.