Govt notifies rules for mandatory CSR spending from profits

Much-awaited rules for the new 'corporate social responsibility' regime were notified today, under which companies with sizable businesses would need to spend minimum 2 percent 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. Listing out the permitted CSR activities, the government said that they need to be undertaken as per approval of 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 the 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 criteria. Besides, contributions made "directly or indirectly" to any political party have been excluded from CSR ambit. The CSR policy of a company should also specify that "surplus arising out of the CSR projects or programmes or activities shall not form part of the business profit of a company".

A company can also carry out CSR works through a registered trust or society or a separate company.