Companies CSR funds should not be used as a source of funding government schemes, the Ministry of Corporate Affairs (MCA) has said, adding that such spending should have a larger multiplier effect.
Allaying concerns in certain quarters that compulsory CSR spending under the Companies Act, 2013, could be used for funding government schemes, the Ministry has come out with a detailed Frequently Asked Questions (FAQs) on CSR norms.
The Ministry has also said such spending cannot be considered as business expenditure and are also not entitled for tax benefits.
Further, contributions made to political parties and projects that benefit only employees of a firm and one-off events such charitable contribution will not qualify as CSR spending under the companies law.
“CSR should not be interpreted as a source of financing the resource gaps in government scheme,” the Ministry said.
“In principle, CSR fund of companies should not be used as a source of funding government schemes. CSR projects should have a larger multiplier effect than that under the government schemes,” it said. The Ministry noted the objective of CSR provision is indeed to involve the corporates in discharging their social responsibility with their innovative ideas and management skills and with greater efficiency and better outcomes. The board of a company is competent to take decision on supplementing any government scheme, provided that scheme permits corporates participation and all provisions of Section 135 are complied with, it added.
Under the companies law, certain class of entities have to shell out at least two per cent of their three-year average annual net profit towards CSR activities.
It is applicable for entities having net worth of Rs 500 crore or more, turnover of at least Rs 1,000 crore or net profit of Rs 5 crore or more in any financial year.
Section 135 and Schedule VII of the Act pertains to CSR activities.
Emphasising that the government has no role in monitoring corporate social responsibility (CSR) spending activities, the Ministry has clarified that Section 8 or not-for-profit companies are also required to follow the norms. Providing clarity, the Ministry said average net profit for CSR purpose refers to profit before tax. “Computation of net profit for Section 135 is as per Section 198 of the Companies Act, 2013 which is primarily Profit Before Tax (PBT),” it said.
This article was taken from here.