The government has tightened the norms on the mandatory corporate social responsibility spend and levied a penalty on corporates not meeting their commitment.

Annual action plan

Corporates can now register the projects undertaken by charitable institutions under its CSR, provided the project is registered separately with the Ministry of Corporate Affairs in a specified format, along with the impact assessment report on CSR project. To ensure that the social projects committed by corporates do not remain in paper alone, the government has directed the CSR committee of corporates to submit an annual action plan, in addition to the CSR policy.

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Recently, the government had allowed corporates to consider their spend on Covid relief as part of CSR activity.

Companies can now spend more than the mandated 2 per cent of their net profit on CSR, and the excess amount spent can be set off against the CSR obligation in future years. This flexibility is available in perpetuity.

Seshagiri Rao, Joint Managing Director, JSW Steel, said the amendments have made corporate spending on CSR stricter even while allowing the set-off of higher spend in a particular year against the commitment in later years.

The move will bring in more transparency and increase the burden on compliance for corporates, he added.

Monetary penalty

The government has also implemented monetary penalty on corporates for not spending 2 per cent of the net profit on CSR or for not transferring unspent amounts to specified accounts.

Following protests from corporates on default of CSR spend, the government has introduced a penalty of ₹1 crore for the defaulting company and ₹2 lakh for each defaulting officer.

Dr S Rajagopal, Executive Director, Texprocil, said the decriminalisation of CSR violations and treating them as a civil mistake and not a criminal act is a matter of great relief for corporates.

Exempting companies having CSR obligations below ₹50 lakh from the need to form a CSR committee and permitting them to fulfil their CSR obligations through the respective boards is not only a practical change, but also eases the burden on small firms, he said.

Other changes like making it mandatory for companies to transfer capital assets created from CSR funds to public trust, society or Section 8 Company (non-profit organisation) will ensure transparency in compliance and generate public good will and trust with the community at large, he added.