CSR spending to be voluntary, not mandatory, under new law
The government is unlikely to thrust companies with a mandatory spend on philanthropy as was being debated earlier. The new Companies Bill will make a mention asking companies to spend upto 2% of their net profits on corporate social responsibility but may not make it mandatory under a specific clause.business Updated: Mar 14, 2011 02:00 IST
The government is unlikely to thrust companies with a mandatory spend on philanthropy as was being debated earlier. The new Companies Bill will make a mention asking companies to spend upto 2% of their net profits on corporate social responsibility (CSR) but may not make it mandatory under a specific clause. The Parliamentary Standing Committee has, however, underlined the need to mandate firms to spend on philanthropic activities.
The objective to invoke the spirit of corporate philanthropy as a matter of intent rather than as legislation. Making it (CSR) mandatory could carry risk of malpractices, an official said on the condition of anonymity.
The government has held several rounds talks on the issue with the industry bodies and companies.
Industry bodies had earlier said that spending on CSR is critical but making it mandatory for firms may not result in best practices.In India, while most companies carry out CSR programmes as part of their charitable activities, a few such as the ITC Group, Hindustan Unilever Ltd, Bharti Airtel and the State Bank of India have included them in their business models.
The Companies Bil is unlikely to be placed in Parliament during the current session, government sources said. The finance ministry had earlier indicated that it would be presented in Lok Sabha for its approval in this session.
"We will definitely make a mention of 2% spends on CSR in the new Companies Bill but it may not be made mandatory as was being discussed earlier, the ministry feels that forcing companies to spend on CSR may lead to further malpractice," the official said. Firms must spend on CSR but it should not be forced, he added.
The Institute of Chartered Accountants of India is set to chalk out plans for a new accounting system to keep a record of all company spends on CSR.