As per the (Indian) Companies Act, 2013 (“Act”), companies in India having a net worth of INR 500 Crores or more, or a turnover of INR 1,000 Crores or more, or a net profit of INR 5 Crores or more in the immediately preceding financial year (“FY”) are required to spend 2% of their average net profit of the preceding three years on corporate social responsibility (“CSR”). CSR is primarily regulated under Section 135 of the Act read with The Companies (Corporate Social Responsibility Policy) Rules, 2014 (“CSR Rules”).
From time to time, the Ministry of Corporate Affairs (“MCA”) has issued certain clarifications and FAQs on spending for COVID-19 related activities. The gist of such clarifications and FAQs as follows:
1. On March 23, 2020, the MCA clarified that spending of CSR funds for COVID-19 related activities would be eligible as a CSR activity under item nos. (i) and (xii) of Schedule VII of the Act which is related to promoting healthcare, including preventive health care and sanitation, and disaster management.
The clarification can be viewed here.
2. On April 10, 2020, the MCA issued FAQs providing clarifications on queries sought by stakeholders regarding CSR expenditure related to COVID-19 activities. The FAQs along with a summary of the MCA’s responses are detailed below:
From the FAQs, it would appear that:
Spending on COVID-19 related activities would count as an eligible CSR activity under items nos. (i) and (xii) of Schedule VII relating to the promotion of health care including preventive health care and sanitation, and disaster management;
Contributions to the funds/types of funds specially detailed in Schedule VII of the Act would count as an eligible CSR activity, however, contributions to a chief minister’s relief fund or a state relief fund or any other type of fund not mentioned in Schedule VII of the Act would not be treated as being an eligible CSR activity. The funds detailed in Schedule VII of the Act are as follows:
Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga,
Prime Minister’s national relief fund or Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund),
Any other fund set up by the Central Government for socio-economic development and relief and welfare of the schedule caste, tribes, other backward classes, minorities, and women.
3. Contributions to a state disaster management authority would be treated as being an eligible CSR activity;
The payment of wages or salaries to employees/workers would not be treated as being an eligible CSR activity. However ex-gratia payments to temporary/casual workers /daily wage workers which are over and above the wages that are payable to such workers would be treated as being an eligible CSR activity on a one-off basis (subject to a declaration being provided to this effect by the Board of the company in question and with the statutory auditor also certifying the same).
The FAQs can be viewed here.
4. On January 13, 2021, the MCA issued a clarification on the spending of CSR funds for awareness campaigns/programmes or public outreach campaigns on the COVID-19 vaccination programme.
Pursuant to this clarification, the undertaking of awareness campaigns or public outreach programs on COVID-19 vaccination programmes would also be eligible as a CSR activity. This would be in addition to the funding or undertaking of a COVID-19 vaccination program by a company. Please however note in this regard that a COVID-19 vaccination program undertaken or funded by a company for its employees would not be considered to be an eligible CSR activity under the Companies (Corporate Social Responsibility Policy) Rules, 2014 (“CSR Rules”).
The clarification can be viewed here.
5. On April 22, 2021, the MCA issued a clarification on the spending of CSR funds for setting up makeshift hospitals and temporary COVID care facilities.
Pursuant to this clarification, a company can use CSR funds (with this being an eligible CSR activity) to set up makeshift hospitals and temporary COVID care facilities in consultation with applicable state governments.
The clarification can be viewed here.
6. On May 5, 2021, the MCA issued a clarification on creating health infrastructure as well as on contribution for specified research and development projects as well as contribution to public funded universities and/or certain other educational and/or research institutions mentioned in Schedule VII of the Act and certain research organisations.
Pursuant to this clarification, a company can use CSR funds for ‘creating health infrastructure for COVID care’, ‘establishment of medical oxygen generation and storage plants’, ‘manufacturing and supply of Oxygen concentrators, ventilators, cylinders, and other medical equipment for countering COVID-19’ or similar such activities with all of these activities being deemed to be eligible CSR activities.
In addition, contributions by a company to specified research and development projects as well as contributions to public-funded universities and certain Organisations engaged in conducting research in science, technology, engineering, and medicine would also be considered as being eligible CSR activities.
The clarification can be viewed here.
NOTES
a. A company can undertake CSR activities by the company itself (or together with other companies) or through the classes of outside agencies / implementing agencies specified under the CSR Rules. The types of outside agencies/implementing agencies that are specified under the CSR Rules are as follows:
a company incorporated under Section 8 of the Act, or a registered public trust or a registered society, registered under section 12A and 80 G of the Income Tax Act, 1961, established by the company, either singly or along with any other company, or
a company incorporated under Section 8 of the Act or a registered trust or a registered society, established by the Government of India or any State Government, or
any entity established under an Act of Parliament or a State legislature, or
a company established under Section 8 of the Act, or a registered public trust or a registered society, registered under section 12A and 80G of the Income Tax Act, 1961, and has an established track record of at least three years in undertaking similar activities.
b. If a company fails to spend 2% of its average net profit of the preceding three years in accordance with its CSR obligations under Section 135of the Act, then:
In case of ongoing projects: (a) the unspent amount shall be transferred to Unspent CSR Account within one month from the end of such financial year, (a) such unspent amount is to be spent within three years from April 1 of next financial year, and (c) if any transferred amount is not spent within the three year period, then the company in question is to transfer such unspent amount to any of the Funds mentioned in Schedule VII of the Act (e.g. PM CARES Fund or the Clean Ganga Fund or any other fund set up by the Government of India for socio-economic development and relief and welfare of the schedule caste, tribes, other backward classes, minorities, and women) within one month from the end of the three years period.
In other cases: the unspent amount shall be transferred to any of the Funds mentioned in Schedule VII of the Act within 6 months from the end of such financial year.
c. Where a company spends an amount in excess of 2% of their average net profit of the preceding three years, such excess amount may be set off against the requirement to spend CSR expenditure by the company up to immediate succeeding three financial years in accordance with the CSR Rules.
d. Activities that benefit the employees of a company (as defined in clause (k) of section 2 of the Code on Wages, 2019 (29 of 2019)) would not be deemed to be eligible CSR activities under the CSR Rules.
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