Govt provides clarity on CSR activities under Companies Act

Providing more clarity on social welfare spending norms for corporates, the government has said that "one off events" such as marathons and sponsorships of television programmes would not considered towards CSR expense.
Under the new Companies Act, certain class of profitable entities are required to shell out at least two per cent of their three-year annual average net profit towards Corporate Social Responsibility (CSR) activities.
Asking stakeholders to "liberally" interpret the provisions in Schedule VII (Companies Act) -- that relates to CSR works -- the government has said that CSR activities should be undertaken only in "project/programme" mode.
"One-off events such as marathons/awards/charitable contribution/advertisement/sponsorships of TV programmes etc would not be qualified as part of CSR expenditure," the Corporate Affairs Ministry has said.

According to the Ministry, salaries paid by the companies to regular CSR staff as well as to volunteers (in proportion to company's time/hours spent specifically on CSR) can be factored in as CSR expenditure.
Clarifying about the time period of three years for calculating CSR spend, the Ministry has said "any of the three preceding financial years" would be taken into account for the purpose.

"Expenditure incurred by Foreign Holding Company for CSR activities in India will qualify as CSR spend of the Indian subsidiary if, the CSR expenditures are routed through Indian subsidiaries and if the Indian subsidiary is required to do so as per section 135 of the Act," the Ministry said in a circular.

Meanwhile, expenses incurred by companies for the fulfilment of any Act/Statute of regulations would not be counted as CSR expenditure.
Contribution to corpus of a trust or society, among others, that are set up exclusively for CSR activities would come under the social welfare spending ambit.
The Ministry has also prepared an illustrative list of activities that can be classified as CSR work. Among them, "renewable energy projects" would be considered as a CSR activity provided that it is not part of the particular company's business.
As per the circular, the entries in Schedule VII must be interpreted liberally so as to capture the essence of the subjects enumerated.

CSR rules are applicable to companies having at least Rs 5 crore net profit, or Rs 1,000 crore turnover or Rs 500 crore net worth.
In case these entities are unable to spend the required amount, reasons for the same have to be given to the Ministry.