Brief Introduction
Corporate Social Responsibility (CSR) refers to an organization’s responsibility towards the betterment of the environment, including both ecological and social, as well as towards the community within which the same is operating. Thus, such a responsibility can fulfilled by making contribution towards CSR funds.
Considering the spread of novel Coronavirus in India and World Health Organisation (WHO) declaration of COVID-19 as a deadly disease, the central Government of India has decided to treat Coronavirus (COVID-19) as a notified disaster. As per section 135(1) of the Companies Act,2013, it has been provided that:
• All the companies, including holding and subsidiary,
• Foreign company, having their branch office or project office, established in India
having net worth of at least Rs 500 crores or more, or having turnover of a least Rs 1000 crores or more, or having profit of at least Rs. 5 crores or more, and having attained the said limit during the immediately preceding year, shall ensure that such a corporate entity spends at least 2% of their average net profit, in a particular financial year, being calculated in respect of immediately preceding 3 financial years. However, in case the entity has not completed a period of three years since its inception, the average net profit shall be determined, taking into consideration, the profits of the financial year since its inception.
Application of CSR Provision
As per Companies Act 2013, it has been provided that certain specified classes of organizations, being profitable in nature, shall dish out a minimum of 2% of their three-year average net profit and the same be applied towards Corporate Social Responsibility (CSR) activities. The companies having following net-worth during the immediately preceding yr can make CSR expenditure for COVID – 19 under Section 135 of the companies Act, 2013, every company having –
• The net worth of Rs. 500 Crore or more
• Turnover of Rs. 1000 crore or more
• Net Profit of Rs. 5 crores or more
CSR Provisions on Foreign Companies
A foreign corporation having its branch office or project office in India, which fulfils the factors mentioned above can even make the Corporate Social Responsibility (CSR) for COVID – 19. Following is the summary of regulatory announcements regarding CSR Spending for COVID relief activities: Circular No 10/2020 Dated 23rd March 2020
1. MCA Clarified the following:
• Amount spent in respect of COVID-19 management, be eligible as CSR Activity.
• CSR funds spent on the various activities, being prescribed under item nos. (i) and (xii) of Schedule VII.
• MCA also clarified that the items prescribed under schedule VII, have been provided as broad-based and shall be interpreted liberally.
2. Office Memorandum Dated 28th March 2020
• MCA has also provided that the donations and contributions to PM-CARES Fund shall be eligible and be counted for permissible CSR activity.
3. Notification No CSR526(E) Dated 24th August 2020
• MCA has also amended the Companies (CSR Rules) 2014, in order to provide for certain benefit towards the companies engaged in the business of R&D activity of latest vaccine, drugs and medical devices and has been provided that such companies may undertake research and development activities associated with COVID-19 for financial years 2020-21, 2021-22 and 2022-23 subject to certain conditions. These are -
Such R&D activities be meted out together with any of the institutes or organisations mentioned in item (ix) of Schedule VII to the Act.
Details of such activity shall be disclosed separately within the Annual Report on CSR included within the Board’s Report”.
4. Circular No 01/2021 Dated 13th January 2021
• As per this circular, it has been clarified that the spending on CSR funds for carrying out awareness campaigns/ programmes or public outreach campaigns on the COVID-19 vaccination programme, shall also be eligible as CSR activity.
5. Circular No 05/2021 Dated 22nd April 2021
• Also, the spending of CSR funds in respect of putting in place makeshift hospitals and temporary COVID-Care facilities has been included in eligible CSR Activity list.
6. Circular No 09/2021 Dated 5th May 2021
• MCA provided that the spending of CSR funds in relation to creation of health infrastructure for COVID-Care, establishments of medical oxygen generation and storage plants, manufacturing and provide of Oxygen concentrators, ventilators, cylinders and other medical equipment for countering COVID-19’ or similar such activities are eligible CSR activities.
7. Circular No 13/2021 Dated 30th July 2021
• MCA has clarified spending of CSR funds for COVID-19 vaccination for persons apart from the staff and their families, is an eligible CSR activity.
8. CSR expenditure associated with COVID-19 activities Sun Apr 12 2020
• The Ministry of Corporate Affairs (MCA) has been receiving several references/ representations from various stakeholders seeking clarifications on eligibility of CSR expenditure associated with COVID-19 activities. during this regard, a group of commonly asked Questions (FAQs) together with clarifications are provided below for better understanding of the stakeholders.
Portal For CSR Contribution
For the purpose CSR contribution, the govt. of India may immediately establish a portal on which specific requirements like equipment, medicines, etc. are going to be posted, and also the company could also be permitted to contribute CSR funds in cash or kind towards those particular requirements.
In the new yr, a major portion of the CSR funds can transfer to the CSR fund without upsetting commitments to ongoing projects. Due to the widespread of novel Corona Virus in India, MCA decided to amend Schedule VII, being provided under the Section 135 of Companies Act, 2013. Thus, in keeping with the Schedule VII of Companies Act, the eligible activities under the Corporate Social Responsibility Policies are -
• Eradicating extreme hunger and poverty
• Promotion of education
• Promoting gender equality and empowering women
• Reduction in child mortality and improvement in maternal health
• Combating human immunodeficiency virus (HIV), acquired immune deficiency syndrome, malaria and the other diseases
• Employment enhancing vocational skills
• Ensuring environmental sustainability
• Social business project
• Contribution to the National Relief fund of Prime Minister or the other relief fund founded by the govt of India
• Government for socio-economic development and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and girls
Along with these activities, the govt has included disaster management, including relief, rehabilitation and reconstruction activities as Corporate Social Responsibility (CSR) Activities.
Contribution made to COVID–19
The funds are often spent on various activities associated with COVID-19 on the promotion of healthcare; including preventive healthcare and sanitation are considered because the company’s CSR obligations –
• With pandemic unfolding and resources running scares, the govt. has issued various clarifications to clarify that funds spent on covid relief are eligible as CSR activity.
• As per the new CSR rules, the comply-or-explain regulations has been replaced with a compulsory regimen.
• Indian corporations haven't been more accountable for their social responsibility as they're now, ever since the govt notified the new rules in January 2021 underlining the large theme that CSR has been made mandatory and a statutory obligation, and hence, making India as the primary country to have done this.
• In 2014, Section 135 of the companies Act made it mandatory for each company with a net worth of a minimum of Rs 500 crore, turnover of Rs 1,000 crore or more, or a minimum profit of Rs 5 crore during the immediately preceding.
Expenditure on COVID jabs be considered as CSR Activity
• Companies spending funds on COVID vaccination for people aside from employees and their families are considered as a CSR expenditure.
• The corporate affairs ministry, which is implementing the companies Act, 2013, has issued a clarification during this regard.
• In the month of March 2020, MCA provided that the spending of CSR funds, on COVID-19, be eligible as Corporate Social Responsibility activity.
• Thus, the companies have been provided with the option to undertake activities, apart from the activity mentioned in the law, however, the same shall be eligible only on fulfilment of conditions mentioned in the Companies (CSR Policy) Rules, 2014 and the circulars associated with CSR, being issued by the MCA, from time to time.
FAQs on CSR Spending
Q.1: Will the contribution made to ‘PM CARES Fund’ be eligible and qualify as CSR expenditure?
Ans. Contribution made to ‘PM CARES Fund’ shall be eligible and qualifies as CSR expenditure and the same has been provided under item no (viii) of Schedule VII of the companies Act, 2013 and was further clarified via Office memorandum F. No. CSR-05/1/2020-CSR-MCA dated 28th March, 2020.
Q.2: Will the contribution made to ‘Chief Minister’s Relief Funds’ or ‘State Relief Fund for COVID-19’, be eligible or qualify as CSR expenditure?
Ans. Any sought of contribution to Chief Minister’s Relief Fund’ or ‘State Relief Fund for COVID-19’, hasn’t been provided for in the Schedule VII of the Companies Act, 2013. Hence, such kind of contribution does not qualify as eligible CSR expenditure.
Q.3: Will the contribution made to State Disaster Management Authority, be eligible or qualify as CSR expenditure?
Ans. Any sought of contribution made to State Disaster Management Authority, in order to combat COVID-19, shall be eligible and qualify as CSR expenditure and the same has been provided under the item no (xii) of Schedule VII of the 2013 and has been further clarified via general circular No. 10/2020 dated 23rd March, 2020.
Q.4: Will the utilization of CSR funds for COVID-19 related activities, be eligible or qualify as CSR expenditure?
Ans. The MCA, via general circular No. 10/2020 dated 23rd March, 2020, clarified that any amount of CSR funds, being utilized for the purpose of COVID-19 related activities, be eligible or qualify as CSR expenditure. Furthermore, it has been provided that the funds can also be spent for various activities associated with COVID-19, being provided under items nos. (i) and (xii) of Schedule VII.
Q.5: Will the payment of salary/wages to employees and workers, including contract labour, during the lockdown period be considered and adjusted against the CSR expenditure?
Ans. It has been provided that the payment of salary/ wages, is an expenditure in the normal course of business and the same is contractual and statutory obligation of the entity. Similarly, the said payment during the lockdown period, would also be the responsibility of the employer, since the employees are not having any alternative source of employment. Hence, the payment of salary/ wages to employees and workers during the lockdown period, does not qualify as eligible CSR expenditure.
Q.6: Will the payment towards the wages of casual /daily wage workers during the lockdown period, be eligible for adjustment against the CSR expenditure?
Ans. It has been provided that the payment of wages to temporary or casual or daily wage workers during the lockdown period, be considered as an element of the moral/ humanitarian/ contractual obligations of the corporate and such an obligation be applicable to any of the companies, irrespective of their legal obligation for CSR contribution. Thus, it has been concluded that the payment towards the wages to temporary or casual or daily wage workers during the lockdown period, does not stand eligible as CSR expenditure.
Q.7: Will the payment of ex-gratia to temporary /casual /daily wage workers, be eligible or qualify as CSR expenditure?
Ans. Where any ex-gratia payment has been granted to any temporary / casual workers/ daily wage workers over and above the disbursement of wages, and the same has been made specifically with the aim to help them fight against COVID 19, the same shall be eligible as CSR expenditure, being eligible as onetime exception, provided the same has been authorized under a declaration by the Board of the entity, and has been duly certified by the statutory auditor of the said entity.
