Govt notifies rules for 2% mandatory CSR spending

Donations to political parties not eligible

Govt notifies rules for 2% mandatory CSR spending

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.

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.

The government said that CSR activites need to be approved by 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 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. Besides, contributions made “directly or indirectly” to any political party have been excluded from CSR ambit.

A company can also carry out CSR works through a registered trust or society or a separate company. It also collaborate with other companies for CSR activities, provided they have to separately report about spending on such projects.

“The CSR activities shall be undertaken by the company, as per its stated CSR policy, as projects or programmes or activities (either new or ongoing), excluding activities in pursuance of its normal course of business,” as per the notification issued by the Corporate Affairs Ministry.

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