Donation to PM-Cares, not states’ relief fund, to count as CSR: Govt
A clarification to the effect by the ministry of corporate affairs triggered opposition allegations that the Centre intended to corner all the money that companies had earmarked for CAR activities -- a charge the government brushed aside.Updated: Apr 12, 2020, 06:17 IST
New Delhi Companies’ contributions to the chief minister’s relief fund or the state relief fund towards the fight against the coronavirus disease (Covid-19) will not count as corporate social responsibility (CSR) spending, but those to the newly established Prime Minister ‘s Citizen Assistance and Relief in Emergency Situations (PM-CARES) fund or to the State Disaster Management Authority will, the Centre said on Saturday.
A clarification to the effect by the ministry of corporate affairs triggered opposition allegations that the Centre intended to corner all the money that companies had earmarked for CAR activities -- a charge the government brushed aside.
“If CM Relief Fund is included, CSR money will not flow outside of the industrial states such as Maharashtra, Gujarat and Andhra Pradesh.Industrial states will consume about 57% of the about Rs 15,000 annual CSR funds and non-industrial states like Bihar, Bengal, Orissa and the Northeast would remain high and dry,” a government official said, requesting anonymity.
Criticising the Union government, Communist Party of India (Marxist) leader Sitaram Yechury had said: “Corner all CSR monies for his personally named fund & deny States - who are in the frontline of combatting #COVID19 -- these funds. This is “Cooperative Federalism”? Amend Schedule 7 of Companies Act to permit State govts to access these funds which could save millions of lives.”
The schedule specifies government-approved CSR activities, which include eradicating hunger, poverty and malnutrition, and promoting healthcare, education and gender equality. It also covers activities related to environmental sustainability, protection of national heritage, art and culture, training to promote sports, contributing to the Prime Minister’s National Relief Fund and disaster management.
Companies with a net worth of Rs 500 crore or more, or a turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more in the immediately preceding financial year are mandatorily required to spend 2% of their average net profit of the preceding three years on CSR. These activities are governed by the Section 135 of the Companies Act, 2013 and the government specifies activities to be undertaken by a company under CSR.
In a set of frequently asked questions (FAQs) and answers, the ministry of corporate affairs said corporate donations to the Chief Minister’s Relief Fund or State Relief Fund for combating Covid-19 had not been included in Schedule VII of the Companies Act, 2013 and contributions to the funds shall not qualify as admissible CSR expenditure.
MCA said the FAQs were issued after various stakeholders sent representations seeking a clarification on what expenditure to advance the fight against the pandemic would qualify as CSR spending.
There had been confusion over the eligibility of donations made towards combating Covid-19 to be counted as CSR expenditure after the Centre issued two separate circulars on the matter.
“Keeping in view of the spread of novel Corona Virus (COVID-19) in India, its declaration as pandemic by the World Health Organisation (WHO), and decision of Government of India to treat this as a notified disaster, it is hereby clarified that spending of CSR funds for COVID-19 is eligible CSR activity,” the first circular on March 23 said.
On March 28, MCA issued a clarification that “any contribution made to the PM CARES Fund shall qualify as CSR expenditure” under the Companies Act 2013. The same day the government had announced the setting up of the public charitable trust under the oversight of the Prime Minister.
While CSR is a board-driven process and the board of a company is empowered to plan, decide, execute and monitor CSR activities based on the recommendation of its CSR committee, the government specifies broad areas eligible to be counted as CSR activities.
According to an industry estimate, about Rs 50,000 crore has been spent on CSR since 2014-15 and around Rs 30,000 crore still remains unspent. On average, companies’ annual CSR funds are to the tune of Rs 15,000 crore.
CSR funds of several companies remain unspent for lack of eligible projects. Minister of state for finance and corporate affairs Anurag Singh Thakur told Lok Sabha on March 16 that a high-level committee on CSR had recommended that unspent CSR money be transferred to a separate designated account created for the purpose.
“Such unspent amount, and the interest earned thereon, be spent within a period of three to five years, failing which the same be transferred to a fund to be specified by the central government which may be used for innovative, high-impact projects related to activities listed in schedule VII,” Thakur said.