Yours socially

After generating much deate since they were proposed last year, the Corporate Social Responsibility Rules (CSR) have finally been notified by the government. That CSR is a noble objective is undisputed — more so in an era when executive pay and corporate greed are being questioned. That said, there are concerns over how the law will be implemented. The final rules fix some, but not all of the concerns raised initially.

There are some welcome additions to the list of eligible CSR activities. They include livelihood enhancement activities for the armed forces, rural development projects, promoting preventive health care and sanitation as well as making safe drinking water available.

However, the convenient escape clause of meeting the CSR requirements by writing out a cheque to the Prime Minister’s Relief Fund would probably be the most popular with entities who do not want to spend their time and energy in relief of the poor.

The threshold limits too remain unaltered — ₹1,000 crore of turnover, ₹500 crore of net worth or ₹5 crore of net profit — the profit threshold is too small when compared with the others and should be increased to ₹50 crore. Profits received from overseas firms and dividends received would be excluded from profit computation. Contributions made to any political party have been excluded from the CSR ambit.

The CSR policy of a company should also specify that surplus arising out of CSR projects or activities shall not form part of the business profit of a company. A company can also carry out CSR works through a registered trust or society or a separate company.

As per the rules, a company may also collaborate with other companies for CSR activities, provided it has to separately report about spending on such projects. On manpower for CSR works, the government has said companies can spend only up to 5 per cent of the total CSR expenditure in a financial year. This would be applicable for their own personnel and those of their implementing agencies.

Minimum spends on CSR remain at 2 per cent of average profits of the previous three years, on activities specified by the government, which do not include political funding. Companies that are unable to do so have to explain.

The rules also clarify that any private company that does not have independent directors can form CSR committees without such directors.

Interestingly, the government has excluded state funds from Schedule VII after the Chhattisgarh government interpreted the law uniquely, asking firms to deposit their contributions to the chief minister’s community development fund rather than undertake CSR projects on their own.

Attention now shifts to the Central Board of Direct Taxes (CBDT), which should announce a specific tax break for CSR activities. The CBDT should ensure that if at all they are keen on providing a tax break, they should be so generous that they induce entities to adopt CSR as an initiative — there should be a 100 per cent tax deduction for at least the first five years.

Else, the coffers of the Prime Minister’s National Relief Fund are going to increase substantially as entities will be killing two birds with one stone — they meet CSR norms without even stepping out of their workplace and they get a 100 per cent tax deduction too.

The writer is a chartered accountant

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