Government Panel Suggests Making CSR Spend Tax Deductible

A government panel to review corporate social responsibility norms suggested making such contributions tax deductible besides treating non-compliance of CSR norms a civil offence.

The panel headed by Corporate Affairs Secretary Injeti Srinivas recommended making CSR contribution tax deductible—which isn’t allowed currently—and having a provision to carry forward unspent balance for three to five years, Ministry of Corporate Affairs said in a statement.

This comes just days after amendments to the CSR provisions in the Companies Act, 2016 which mandates that companies of a certain size spend 2 percent of their average annual profit over three years on CSR activities as defined by the law.

These amendments provide that any unspent CSR amount is to be transferred within 30 days from the end of the financial year to a special account called the Unspent CSR Account. Such amount is to be spent by the company in pursuance of its CSR policy within three financial years from the date of such transfer failing which the same is to be transferred to a fund specified by law. Any violation of this or other CSR provisions would attract not just monetary penalties but als a jail term for all officers of the company, according to the amendments.

This invited criticism from across businesses, and Finance Minister Nirmala Sitharaman assured corporates that the government would review criminal penal provisions for not complying with CSR norms.

The panel has also suggested aligning Schedule VII with the sustainable development goals which would include sports promotion, senior citizens’ welfare, welfare of differently-abled persons, disaster management and heritage protection), among others, the MCA statement said.

Schedule VII of the Companies Act lists those activites that qualify for CSR spends and includes contribution to the Prime Minister’s National Relief Fund or any other fund set up by the central or the state governments for socio-economic development, among others.

The panel was constituted in October 2018 to give recommendations on “strengthening the CSR ecosystem, including monitoring implementation and evaluation of outcomes”. The panel comprises Sameer Sharma, chief executive officer of Indian Institute of Corporate Affairs, AK Mittal, former chairman and managing director of NBCC Ltd., N Chandrasekaran, chairman of Tata Sons, Amit Chandra, managing director of Bain Capital Private Equity, BS Narasimha, former additional solicitor general of India, among others.

Other recommendations of the committee are:

• Introducing impact assessment studies for CSR obligation of Rs 5 crore or more, and registration of implementation agencies on MCA portal.
• Developing a CSR exchange portal to connect contributors, beneficiaries and agencies, allowing CSR in social benefit bonds, promoting social impact companies, and third party assessment of major CSR projects.
• Companies having CSR prescribed amount below Rs 50 lakh may be exempted from constituting a CSR committee. Current law requires companies to form a CSR committee consisting of their board members, including at least one independent director. Around 80 percent of CSR eligible companies have a CSR spend budget of less than Rs 50 lakh.
• Extending CSR provisions to Limited Liability Partnerships citing a need for extending provisions of CSR to all type of business entities to ensure a level playing field.
• Discontinue the transfer of CSR funds to government funds under Schedule VII as eligible CSR activity.
• 5 percent of the companies for which CSR is mandatory must be chosen on a random basis for third party assessment on a pilot basis.