New CSR regime, part of the Companies Act 2013, requires certain class of corporates to shell out at least 2% of their 3-year annual average net profit towards social welfare spending activities

New Delhi : The much-awaited rules for the new ‘corporate social responsibility’ regime were notified on Thursday, under which companies with sizable businesses would need to spend minimum 2 per cent of net profit for benefit of society, reports PTI.

The CSR activities will have to be within India, and the new rules will also apply to foreign companies registered here. However, funds given to political parties and the money spent for the benefit of the company’s own employees (and their families) will not count as CSR.

Listing out the permitted CSR activities, the government said that they 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. The CSR rules will take effect from April 1, as part of the new Companies Act. They will apply to the companies with at least Rs 5 crore net profit, or Rs 1,000 crore turnover or Rs 500 crore net worth.

Such companies will need to spend 2 per cent of their three-year average annual net profit on CSR activities in each financial year, beginning the next fiscal, 2014-15.

For the purpose of deciding the CSR spending eligibility of a company, profit from overseas branches and dividend received from other companies in India will be excluded from the net profit criteria.

Besides, contributions made “directly or indirectly” to any political party have been excluded from CSR ambit. The government last year provided a new structure for political funding by corporates, under which companies can set up ‘Electoral Trusts’ for giving funds to registered political parties of the country.

As the country moves close to general elections, notification for which is expected as early as next week, there is a raging debate on corporate funding of political parties.

Besides, there have been allegations, including by the Aam Aadmi Party, that certain political parties are getting huge funds from some large business houses.

The new ‘Electoral Trust’ structure also provides for some tax benefits to these entities for funds provided to political parties. About a dozen entities including those linked to large business houses such as Ambanis, Tatas, Mittals, Birlas and Vedanta have already set up such trusts.

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 they have to separately report about spending on such projects programmes.

When it comes to having manpower for CSR works, the government has said that companies can spend only up to 5 per cent of total CSR expenditure for them in a single financial year. This would be applicable for own personnel as well as those of their implementing agencies.

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