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In order to facilitate effective implementation of Corporate Social Responsibility (CSR), the Ministry of Corporate Affairs (MCA) has released a Circular on ‘Frequently Asked Questions’ (FAQs) with regard to CSR under Section 135 of the Companies Act 2013. The Circular follows closely on the heels of the release of a report by the High Level Committee set up by the MCA to suggest measures for improved monitoring of the implementation of CSR policies in October 2015, and provides clarity on some of the topics covered in the report. The key highlights of the Circular are:
Applicability of CSR
No role for government in CSR monitoring
Companies’ boards will decide all aspects of CSR
Current tax exemptions valid for CSR spend
No specific tax exemptions are extended to CSR expenditure. However, certain activities such as contribution to Prime Minister’s National Relief Fund (Section 80G), scientific research (Sections 35(1)(ii), 35(1)(iia), 35(1)(iii), 35(2AA)), rural development projects (Section 35AC), skill development projects (Section 35CCD), agricultural extension projects (Section 35CCC), etc. aligned to Schedule VII already enjoy exemptions under different sections as indicated under the Income Tax Act, 1961. Further, the Finance Act 2014 clarifies that the CSR expenditure does not form part of business expenditure.
No carry forward for CSR spend
CSR policy and reporting must for all qualifying companies
Investing in government schemes as CSR
Employee volunteering and in-kind donations
The Circular reiterates that those activities that benefit only the employees or their families, one-off events, expenses towards fulfilment of regulatory statutes, contribution to political parties, activities as part of normal course of business or those undertaken outside of India do not qualify as CSR expenses. It also reiterates that the contribution to corpus of a trust/ society/ Section 8 companies etc. will qualify as CSR expenditure as long as the entity is created exclusively for undertaking CSR activities or where the corpus is created exclusively for a purpose directly relatable to a Schedule VII item.
Co-authored by Abhisekh Shah, Kaushik PS and Priya Malebennur