Corporate Social Responsibility: Issues & Development

Amendment to the CSR Rules

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not Much

Mains level : CSR, SSR

The Corporate Affairs Ministry has amended the rules for Corporate Social Responsibility (CSR) expenditure to allow companies to undertake multi-year projects, and also require that all CSR implementing agencies be registered with the government.

Q.What do you mean by CSR? Discuss the role of CSR activities in social transformation.

What is Corporate Social Responsibility (CSR)?

  • CSR is a type of business self-regulation that aims to contribute to the societal goals of a philanthropic, activist, or charitable nature by engaging in or supporting volunteering or ethically-oriented practices.
  • It rests on the ideology of “give and take” i.e. to take scarce resources from the environment for running a business, and in turn to contribute towards economic, social, and environmental development.

CSR in India

  • India is the first country in the world to make corporate social responsibility (CSR) mandatory, following an amendment to the Companies Act, 2013 in April 2014.
  • Businesses can invest their profits in areas such as education, poverty, gender equality, and hunger as part of any CSR compliance.

All companies with a net worth of Rs 500 crore or more, a turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more, are required to spend 2 per cent of their average profits of the previous three years on CSR activities every year.

What are the new amendments?

  • The amended CSR rules allow companies to set off CSR expenditure above the required 2 percent expenditure in any fiscal year against required expenditure for up to three financial years.
  • There lies an ambiguity whether the rule would apply for expenditure undertaken prior to the amendment.
  • The government is thus allowing corporates that have in good faith incurred excess CSR expenditure in the past to set it off against future CSR expenditure requirements.

Other key changes

  • The amended rules require that any corporation with a CSR obligation of Rs 10 crore or more for the three preceding financial years would be required to hire an independent agency to conduct an impact assessment of their entire project with outlays of Rs 1 crore or more.
  • Companies will be allowed to count 5 percent of the CSR expenditure for the year up to Rs 50 lakh on impact assessment towards CSR expenditure.

What are the changes required for implementing agencies?

  • The new amendment restricts companies from authorizing either a Section 8 company or a registered public charitable trust to conduct CSR projects on their behalf.
  • A Section 8 company is a company registered with the purpose of promoting charitable causes, applies profits to promoting its objectives, and is prohibited from distributing dividends to shareholders.
  • Further, all such entities will have to be registered with the government by April 1.

Impact of the move

  • The change would impact CSR programs of a number of large Indian companies that conduct projects through private trusts.
  • It would mean such private trusts would either have to be converted to registered public trusts or stop acting as CSR implementing agencies.
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