The Ministry of Corporate Affairs has clarified that companies have to ensure that funds transferred to implementing agencies are actually utilized for them to be counted towards mandatory CSR expenditure.

What is Corporate Social Responsibility (CSR)?

• CSR is a type of business self-regulation that aims to contribute to the societal goals of a philanthropic, activist, or charitable nature by engaging in or supporting volunteering or ethically-oriented practices.
• It rests on the ideology of “give and take” i.e. to take scarce resources from the environment for running a business, and in turn to contribute towards economic, social, and environmental development.

CSR in India

• India is the first country in the world to make corporate social responsibility (CSR) mandatory, following an amendment to the Companies Act, 2013 in April 2014.
• Businesses can invest their profits in areas such as education, poverty, gender equality, and hunger as part of any CSR compliance.

All companies with a net worth of Rs 500 crore or more, a turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more, are required to spend 2 per cent of their average profits of the previous three years on CSR activities every year.

What is the recent clarification?

• The MCA has clarified that excess Corporate Social Responsibility (CSR) expenditure prior to FY21 cannot be set off against future CSR expenditure requirements.
• Corporate donations to government schemes cannot be counted as CSR.
• The ministry has also clarified that companies have to ensure that funds transferred to implementing agencies are actually utilized for them to be counted towards mandatory CSR expenditure.

Impact of the move

• This clarification may impact donations to state government schemes which are often done for the sake of managing relationships with the government.

Earlier changes

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