10 January, 2017
Co-authored by Abhisekh Shah, Kaushik PS and Priya Malebennur
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.
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.
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.