CSR rules exclude political funding, define dos & don’ts

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India Inc has finally got the code to run its corporate social responsibility (CSR) activities. The department of corporate affairs put in place stringent rules on Thursday, providing clarity on CSR committee, role of international companies, political donations and responsibilities towards employees.

The new rules, to be effective from April 1, have set aside political donations and social activities for company employees off the wider purview of CSR, while categorically stating that only activities within the country would be considered as CSR.

An official release from the DCA states that only those CSR projects or programmes or activities undertaken in India will amount to CSR expenditure. Besides, projects or programmes or activities that only benefit employees of companies and their families will not be considered as CSR activity in accordance with section 135 of the Act.

“Companies may build corporate social responsibility capacities of their own personnel as well as those of their implementing agencies through institutions with established track records of at least three financial years. But such expenditure should not exceed five per cent of total CSR expenditure of the company in one financial year.

Contribution of any amount directly or indirectly to any political party under section 182 of the Act should not be considered as CSR activity,” the statement said.

Sanjiv Goenka, chairman of RP Sanjiv Goenka Group, termed it an excellent policy. “More so because it has included a whole new set of heads and activities under its purview. The way it has included these new items reflects clarity and sincerity on part of the minister, who deserves to be complimented for this.”

Goenka said these norms would herald a new era for corporate India in terms of executing its social obligations. “It will definitely have a huge positive impact on women and promises to bring in and ensure transparency in the system.”

Under the new provisions, companies will have to briefly outline their CSR activities on their website and set up a CSR committee to approve the projects to be undertaken. The CSR committee can be a registered trust or a society or a company established by its holding or subsidiary.

Santhosh Jayaram, technical director for sustainability and climate change at KPMG India, said, “The time taken for release of the rules is justified by the clarity it has brought in comparison with the draft rules.

The CSR policy will now be different from the conventional policy statements companies make, as the rule stipulates the requirement for listing the CSR projects and programmes and also displaying the monitoring process for such programmes on the company’s website. The rule clearly raises the governance of CSR and brings in more transparency.”

Harinderjit Singh, partner at Price Waterhouse, said that the CSR rules have come as relief for private limited companies. They need not appoint an independent director on their CSR committee.

They need to have only two directors on the committee if the company has only two directors on its board. However, he questioned whether rules can limit the scope of the Section 135 of Companies Act 2013.

“The companies can also collaborate with other companies for undertaking CSR activities in such a manner that the CSR committees of respective companies are in a position to report separately on such projects or programmes in accordance with these rules,” the official release said.

The Companies Act 2013 states in Clause 135 that every company having net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more during any financial year, will constitute a CSR committee to recommend its activities for discharging CSR in such a manner that the company would spend at least 2 per cent of its average net profits of the previous three year on CSR activities.

The companies will have latitude in designing project based CSR interventions within the framework of Schedule VII of the Bill and the CSR policy of the company.


(With inputs from Ritwik Mukherjee in Kolkata)

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