CORPORATE SOCIAL RESPONSIBILITY
Welcome Rules
The Union Government
has now notified the rules governing corporate social responsibility (CSR), clarifying
the scope of CSR and, at the same time, also clarifying, that contributions to
state government funds and funding of political parties will not be considered
CSR activities.
CSR activities will
now include -
Preventive
healthcare, sanitation, providing safe drinking water, rural development
projects, measures to benefit armed forces veterans, Promoting rural sports,
nationally recognized sports, paralympic sports and Olympic sports, setting up homes and hostels for women,
orphans and senior citizens, measures to reduce inequalities faced by socially
and economically backward groups and support to technology incubators in
academic institutions etc .
Working towards 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 would also come
under CSR ambit.
Promoting
education, environment sustainability, gender equality and eradicating hunger,
poverty and malnutrition are some of the other activities that will be considered
CSR activities.
Other CSR activities would be
ensuring ecological balance, protection of flora and fauna, animal welfare,
agro-forestry, conservation of natural resources and maintaining quality of
soil, air and water.
Every company
having a net worth of Rs.500 Cr or more or revenue above Rs.1,000 Cr or a net
profit above Rs.5 Cr needs to spend at least 2% of average net profits for past
three years on the CSR activities.
The definition of
net profit 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.
Corporate affairs
minister Sri Sachin Pilot said that the
rules have been finalized after extensive discussions with all stakeholders and
will come into effect from 1 April,2014.
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.
A company can also
carry out CSR works through a registered trust or society or a separate
company.
Also, the CSR
spending will have to be undertaken in India and should not benefit any
employees of the company.
“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,” Said Shri Sachin Pilot,
the Union Minister.
The CSR Notifications have been issued for
Section 135 and Schedule VII of the Companies Act, 2013, that relate to CSR
spending by companies. The final rules notified by the government will be applicable to both
domestic companies and to foreign companies operating in India.
The rules removed
contributions to any state government fund as recognized CSR spending, probably
to avoid likely misuse by state governments. But, instead, the Union Government
could have specified in the rules that state Governments shall not have power
to impose any such obligations in respect of CSR on companies functioning in
their States.
Most companies
function across several states and states must not have the Power to control
companies in respect of such activities. Companies must have complete freedom
to choose their line of CSR activities. Further, if states also impose similar
burden, it will be double the burden on the companies and is not at all
Healthy.
This is, by and
large, a very sensible and welcome
legislation. Some modifications and improvements are however necessary. The
term “ at least 2% of average net profits for past three years” imposes an
unnecessary burden on companies currently incurring Net losses. The sensible
thing is to limit the application to Years where there is a net Profit. In most
cases, the latest Net profit is more than the 3 years average and the company
will be spending more in the current year on that basis, rather than on the
basis of 3 years average. On the other hand, if a company incurs net losses for
one or two years, it is not fair to burden it in that year with CSR, simply
because, it had net profits in the third previous year.
Dividend
distribution must be allowed only after setting apart CSR funds. Where a
company spends more than 2% in a year, the excess must be allowed for tax
benefit in the next year, to the extent of 50% in some cases and 100% in respect
of some priority goals of the nation.
In my view, maintaining
Orphanages, education for orphans, education of girl child
must be taken as Priority Goals for the Nations.
There are no other Most
backward classes than Orphans in our country. Orphan is the most unfortunate
and most uncared for one in the society, cruelly left out by his / her own parents – and usually grows into a Beggar, thief, or a goonda, if he survives in this world. India must not have a single
child as Orphan child.
Second, there are no other more insecure persons than
girls in our country right now. If an orphan child is a girl child, she ends up in a brothel or dies in rapes, gang rapes or through sexually transmitted diseases. How many new, young girl children are abducted
and thrown into Brothels across the country – God knows – but we as society and
as Government don’t even think about it. We cannot afford to have one more girl
child being thrown into a Brothel or otherwise exploited helplessly.
Every single report of molestation, rape
and gang rape makes us look like a mentally sick society. And, everyday, new
paper pages are filled with these news.
Empowerment of Orphans and Girls is
therefore the most important aspects of CSR. These two – orphans and Girl
children must be top two national priorities for us and in respect of CSR as
well. Next comes Good Old age homes. For
these Goals, any amount of encouragement can be given to companies.
In respect of these goals, any contribution
made by other smaller companies must also be encouraged by more attractive tax
benefits. For supporting Orphans and Girl children, why only 50% tax deductibility?
What Government must be doing, private Individuals and companies are doing even
now. So, why not 100 % tax benefit? Government must think about it. Promoting good charity is also an art of
Governance.
Environment, sports etc are secondary
Goals.
Overall, the rules for CSR are welcome. And,
the young Union Minister, Shri Sachin Pilot, deserves all appreciation for the
same.
That said, these, like many other things
that are coming up painfully slowly – were required in 1947 – and represent our
woefully Missed Opportunities.
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