Companies not spending their entire corporate social responsibility (CSR) corpus and diverting funds to their balance sheets will now have to declare the amount not spent in their annual report, according to a report by The Hindu Business Line.
Moreover, companies will have to transfer the unspent funds to a separate bank account and spend it within three years, the news daily reported.
These new restrictions on CSR funds are part of a list of proposed amendments to the Companies Act, 2013, that the government will take up during the Winter session of Parliament, sources told the paper.
The amendment may make CSR spending mandatory, as against the current practice of either 'complying' (spending) or 'explaining' why the funds were not spent.
The Corporate Affairs Ministry recently announced that it is examining the records of the top 1,000 companies that were required to spend under their CSR initiative.
Disclosures by 77 companies for FY18 showed unspent amounts equalling a third of their prescribed CSR spending, data from PRIME Database revealed. Median spending of companies has slightly improved over the years to 69.98 percent of the total corpus in FY18, from 42.33 percent in FY15.
Of the 6,286 companies under government scrutiny, most firms reportedly spent less than the mandated amount in April-November of 2016-17, the news daily reported. About 2,203 firms spent more than the required amount during the same period.
A high-level committee recently set-up to strengthen CSR norms has proposed amendments to the existing guidelines.
"The amendments seem to force companies to spend money earmarked towards CSR rather than letting them accrue it on the balance sheet. Keeping the money reserved but unspent does not serve any purpose," a legal expert told the paper.