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Comparison of CSR Rules, 2014 with draft CSR Rules

Mohit Jain 
on 01 March 2014

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MCA has notified the provisions relating to Corporate Social Responsibility (CSR) of the Companies Act, 2013 [Section 135 and Schedule VII of the Act read with Companies (Corporate Social Responsibility Policy) Rules, 2014]. These provisions will be applicable with effect from 1st April, 2014.

The new Companies Act, 2013 mandates companies having a net worth of Rs 500 crore or more; or a turnover of Rs 1,000 crore or more; or a net profit of Rs 5 crore or more to spend of at least 2 % of their average net profit of past three years on CSR activities.

Some of the salient provisions of CSR Rules are:-

- The CSR activities will have to be carried out within India, and the new rules will also apply to foreign companies registered here.

- Contributions made to any political party and money spent for the benefit of the company's own employees (and their families) have been excluded from CSR ambit.

- Profit from overseas branches and dividend received from other companies in India will be excluded from the net profit criteria, for deciding minimum contribution requirement.

- Surplus arising out of the CSR programmes/activities shall not form part of the business profit of a company.

- A company may collaborate with other companies for CSR activities, provided they have to separately report about spending on such projects programmes.

- Companies carrying out CSR activities have to display details of works on their respective websites.

Comparison of Companies (CSR Policy) Rules, 2014 vis-à-vis Draft CSR Rules

Basis

Draft CSR Rules

Companies (CSR Policy) Rules, 2014

Definition of Net Profits

Net Profit means net profit before tax as per books of accounts and shall not include profits arising from branches outside India.

"Net profit" means the net profit of a company as per its financial statement prepared in accordance with the applicable provisions of the Act, but shall not include: -

(i) any profit arising from any overseas branch or branches of the company,

(ii) any dividend received from other companies in India which are complying with CSR provisions.

Tax Treatment

Tax treatment of CSR spend will be in accordance with the IT Act as may be notified by CBDT.

Silent on Tax Treatment

Applicability of CSR provisions to foreign companies

Draft Rules were silent on applicability of CSR rules to foreign companies.

A foreign company defined under clause (42) of section 2 of the Act having its branch office or project office in India, which fulfils the criteria specified in sub-section (I) of section 135 of the Act, shall comply with the provisions of section 135 of the Act and these rules.

Exclusion from CSR Provisions

No specific provision regarding exclusion of an existing company from purview of CSR Rules.

Every company which ceases to be a company covered under threshold criteria specified Section 135 (1) of the Act for 3 consecutive financial years shall not be required to -

(a) constitute a CSR Committee; and

(b) comply with the CSR provisions, till such time it meets the criteria specified in Section 135 (1).

Contribution to Political Party

Silent as to whether funds given to political parties will be counted as fund spend for CSR activity.

Contribution of any amount directly or indirectly to any political party shall not be considered as CSR activity.

Composition of CSR Committee

Draft rules were silent on composition of CSR Committee in case of unlisted public company/ private company/ foreign company.

Section 135 (1) required that CSR Committee should be of atleast three directors, out of which at least one director shall be an independent director.

An unlisted public company or a private company covered under CSR provisions, which is not required to appoint an independent director pursuant Section 149(4) of the Act, shall have its CSR Committee without such director;

A private company having only two directors on its Board shall constitute its CSR Committee with two such directors;

With respect to a foreign company, the CSR Committee shall comprise of at least two persons of which one person shall be resident in India as specified under Section 380 (1) (d) of the Act.

CSR Expenditure

Draft rules were silent on nature of expenses covered within CSR ambit.

CSR expenditure shall include all expenditure including contribution to corpus, or on projects or programs relating to CSR activities approved by the Board on the recommendation of its CSR Committee

.

Expenditure on CSR capacity building

No specific provision regarding expenditure on CSR capacity building

Companies may build CSR capacities of their own personnel as well as those of their implementing agencies through institutions but such expenditure shall not exceed 5% of total CSR expenditure of the company in one financial year.

Regards

Mohit Jain


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