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Government won’t go ahead with new CSR rules

Decision follows suggestions by a panel which wants breaches to be treated as civil offences, backs penalties

, ET Bureau|
Updated: Aug 14, 2019, 09.11 AM IST
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Companies having CSR prescribed amount below Rs 50 lakh can be exempted from the need of constituting a CSR committee, as per the report.
The government will not operationalise the new corporate social responsibility (CSR) provisions in the recently amended Companies Act that make violations punishable by jail, following intense lobbying by a panicked India Inc.

The government will not issue followup rules required to implement the provisions that had drawn sharp criticism.

“These changes will not be commenced,” a senior government official told ET.

The decision follows recommendations by a high-level committee on CSR that submitted its report on Tuesday to finance minister Nirmala Sitharaman. It suggested that violations should be regarded as civil offences that are liable to monetary penalties along with a number of other suggestions to make CSR provisions more effective and less burdensome for companies. In light of the recommendations by the committee, the government won’t proceed with the new rules, said the official cited above.

The companies law was amended in the budget session that concluded last week to provide for imprisonment of up to three years for executives of companies that broke CSR rules apart from fines of ?50,000 to ?25 lakh. While such provisions existed in the companies law, introduction of specific ones for CSR irked industry leaders, who sought a rollback.

Sitharaman, who also handles the corporate affairs portfolio, had assured companies of a review at a Confederation of Indian Industry (CII) meeting last week.

The panel also suggested CSR spending should be eligible for tax deductions and companies be allowed to carry forward unspent balances for three-to-five years.

The committee, headed by corporate affairs secretary Injeti Srinivas, had been set up in October 2018 to review the CSR framework and make recommendations on strengthening the ecosystem, including monitoring implementation and evaluation of outcomes.

“The committee has made far-reaching recommendations,” an official statement said.

Inclusion of Other Activities

If the report is accepted and tax deduction is allowed, it would lower the outgo on CSR to 0.67% as against the mandated 2%, experts said. All companies with a net worth of Rs 500 crore or more, turnover of ?1,000 crore or more or net profit of ?5 crore or more are required to spend 2% of their average profit of the previous three years on CSR activities every year.

The panel wants banks and limited liability partnerships also to be covered by a mandatory CSR expenditure framework. The committee has emphasised that CSR should not be regarded as a means of resource-gap funding for government schemes. CSR spending should be made a board-driven process to provide innovative technology-based solutions for social problems, it suggested.

The panel has backed exemption from constituting a CSR committee for those companies that spend less than ?50 lakh on the activity. It has also recommended aligning CSR activities with Sustainable Development Goals (SGDs). Also prescribed is the inclusion of sports promotion, senior citizens’ welfare, welfare of differently abled persons, disaster management and heritage protection under permitted CSR activities.

The panel has recommended development of a CSR exchange portal to connect contributors, beneficiaries and agencies. It suggested social benefit bonds and promoting social impact companies besides third-party assessment of major CSR projects.

“Making CSR a tax-deductible expenditure and bringing CSR noncompliance under regime of penalty are laudable and definitely uplifts the spirit of CSR provisions,” said Pavan Kumar Vijay, managing director, Corporate Professionals Capital Pvt. Ltd.

The committee recommended impact assessment studies for CSR obligations of ?5 crore and more, and registration of implementation agencies on the Ministry of Corporate Affairs (MCA) portal.

The panel’s members included Tata Sons chairman N Chandrasekaran, Bain Capital Private Equity managing director Amit Chandra, former additional solicitor general BS Narasimha, Luthra and Luthra Law Office founder Rajeev Luthra, Apollo Hospitals Enterprise Ltd executive vice chairperson Shobana Kamineni, Indian Institute of Management-Ahmedabad professor Anil Gupta, Indian Institute of Corporate Affairs director general Sameer Sharma, former NBCC chairman and managing director AK Mittal, Indian Olympic Association president Narinder Batra, chartered accountant S Santhanakrishnan and Helpage India CEO Mathew Cherian, the release said.
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