Parliament has passed amendments to the Companies Act to strengthen laws governing corporate social responsibility (CSR). Mint delves into the changes that have left Indian companies unamused as they face higher compliance and management costs.
What are the laws governing CSR?
The laws governing CSR come under the Companies Act, 2013, and became effective on 1 April 2014. These laws state that companies with a net worth of ₹500 crore or revenue of ₹1,000 crore or net profit of ₹5 crore during the immediately preceding fiscal should spend 2% of their average net profit in the last three years on activities related to social development such as sanitation, education, eradication of hunger, poverty and malnutrition, conservation of heritage, art and culture, and vocational training such as setting up grooming outlets or training centres for sewing.
What are the changes in the law?
Till now, if a company was unable to fully incur the CSR expenditure in a given year, it could carry this amount forward and spend it in the next 12 months, in addition to the money for that year. Under the new laws, any unspent amount will have to be deposited into an escrow account within 30 days of the end of that fiscal. This amount will have to be spent within three years from the date of its transfer, failing which it will be put into a fund, which could even be the Prime Minister’s Relief Fund. The government also plans to include a specific penal provision in the Companies Act in case of non-compliance with CSR.