5 Key Takeaways from the Circular on CSR Laws

Goodera
Published: 25, Jun 2014

Goodera is a global CSR & Sustainability platform, co-headquartered in Bangalore and Menlo Park. With our innovative cloud, mobile, voice and big data platform, embedded with strong domain expertise, we enable and empower corporates to manage their CSR and sustainability goals in a simple, transparent, measurable, and engaging manner. Goodera empowers every stakeholder in the ecosystem including corporates, foundations, employees, government and NGOs. With the vision to power the world of good, Goodera is our new brand identity (we were previously known as NextGen), that resonates with our objective to become a trusted and a reliable partner for every corporate in the world.

As was anticipated, the long-awaited clarifications on the provisions of CSR under Section 135 of the Companies Act 2013 were released by the Ministry of Corporate Affairs last week. The General Circular came as a result of stakeholders seeking clarity on various aspects of the legislation, majorly throwing light upon activities that can qualify under the Act and those that would not. Stated below is a focused compilation of five key takeaways from the circular.

1. Be Liberal The circular has portrayed Schedule VII to be a list of broad items that are to “be interpreted liberally” while companies decide the areas of intervention for CSR projects. The list intends to help companies ensure that the projects capture the essence underlying the items. The approach in interpreting the items can be understood by exploring the projects, including setting up of research, training centres and techno-parks either for the rural communities or the masses; donations to IIMs for conservation of buildings and renovation of classrooms; promotion of road safety awareness; provisions for aids and appliances to the differently-abled; trauma care around highways; consumer protection activities; engaging in ecological farm practices; analyzing product life cycle to conserve soil and renewable energy projects. These can now be qualified as valid CSR activities, according to the just-released circular.

2. Inclusion of Employee Salaries in CSR Expenditure
The big debate on the inclusion of salaries of employees (who work in CSR-related activities) as valid CSR expenditure has been clarified in a manner that has brought respite to many companies, especially to the IT sector. Salaries paid to regular CSR staff and volunteers can now be integrated into the costs of CSR projects.

 3. Non-Inclusion of One-Off CSR Activities 
CSR activities must be implemented in a project/programme form to qualify as CSR as per the Act. Hence, investments in one-off activities like marathons/ awards/ charitable contribution/ advertisement/TV programmes will not qualify as CSR since they cannot be structured in the form of projects. Also, expenses incurred by the company towards the fulfillment of any Act/Regulation would not be counted under the CSR spend. This may include the outlay for Labour Laws, Land Acquisition Act, environment compliance laws and so on.

4. Not Every Contribution to a Section 8 Company is CSR
Following the debate on the mushrooming of Section 8 companies that could help channelize capital and implement projects, it has been clarified that contributions to the corpus of a Trust/ Society / Section 8 company will qualify as CSR only if they were created exclusively for CSR projects and for a purpose that can be directly related to a subject covered in Schedule VII of the Act.

5. CSR for Foreign Holding Companies
Expenditure incurred by a foreign holding company for CSR activities in India qualifies as the CSR spend of its Indian subsidiary if, the CSR expenditures are routed through these subsidiaries (provided the Indian subsidiary falls under the mandate of Section 135 of the Act).

The circular also states that the qualifying criteria for profits applies to companies that have incurred profits exceeding Rs 5 crore in any of the three preceding financial years. These clarifications have, to a large extent, sorted out ambiguities and points of contention that cropped up regarding CSR rules. The widening of the scope of CSR interventions presented by the liberal interpretation Schedule VII of the Act, which had been criticized for not being specific or restrictive enough, opens up a range of options for companies to pick from, and giving way to both strategic as well as purely philanthropic CSR activities.

(By Monika Yadav, Elizabeth Mathew)

  • J. P. Tiwary

    2nd point - salary was already a part of CSR policy 2013 limited to 5% capacity building cost.

    on Jul 30, 2015
  • roopa esther

    Very enlightening. thanks .

    on Jan 27, 2015
  • Gurbir S Khera B-School educator

    Great insights for corporate consultants & trainers, too. Cheers!

    on Oct 29, 2014
  • Capt Haridasan

    Most useful and informative

    on Jul 24, 2014
  • Surekha B

    Also spending on consumer awareness needs to be checked. The reason for companies to be transparent is very strong.

    on Jun 26, 2014
  • Rahul Banerjee

    Employee costs are included, its bonanza for CSR professionals! Government should ask companies to put a robust monitoring mechanism so that companies don't misuse this!

    on Jun 25, 2014
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