CSR to Soon Become Compulsary Under Law: Companies Bill 2011 Passed by Lok Sabha
PUBLISHED: DECEMBER 21, 2012
UPDATE PROVIDED BY NOSHIR DADRAWALA OF THE CENTRE FOR ADVANCEMENT OF PHILANTHROPY.*
The Lok Sabha has passed the Companies Bill 2011. The Bill includes provision for a mandatory 2% CSR contribution by companies.
Clause 135 of the Companies Bill 2011 mandates that every company which fulfills any of the following criteria in a financial year has to constitute a “CSR Committee of the Board” consisting of at least 3 directors including an independent director:
- a net-worth of more than RS 500 crores or
- net profit of more than RS 5 crores in a year or
- turnover of RS 1000 crores
These companies have to spend minimum 2% of “last three years’ average net profits” towards CSR policy. If not spent, the board must provide detailed reasons for not spending on CSR in the company’s Annual Report.
The CSR Committee of the company must formulate and recommend to the Board a Corporate Social Responsibility Policy which should indicate the activities to be undertaken by the Company. Additionally, the Committee has to also recommend the quantum of expenditure to be incurred on these activities. Finally, the Committee has to monitor the CSR Policy of the company from time to time.
The Rajya Sabha has yet to approve the Bill before it can become Law / Legislation.
If the Bill becomes Act the Financial Year 2013-14 may see between Rs. 8,000/- to Rs. 10,000/- crores available for various welfare and development projects either through direct spending by the companies on such programs undertaken by them or in partnership with NGOs or through their Corporate Foundations.
Rules that will be framed subsequently will provide greater clarity in terms of possible tax incentives for CSR compliant companies and several other areas of concern in the minds on corporate heads
* The Author is Chief Executive of the Centre for Advancement of Philanthropy (CAP) (www.capindia.in). This is a matter that has affected scores of charities all across India and requires advocacy at the highest level with the Ministry of Finance. CAP is mobilizing the opinion and support of both tax experts and those affected. All affected trusts and institutions may write to Noshir at firstname.lastname@example.org.