The Ministry of Corporate Affairs (MCA) of India, has recently made an amendment to its Corporate Social Responsibility (CSR) regulations. The amendment means that certain existing provisions have now been relaxed.
CSR has typically been a bone of contention for many businesses due to the strict rules that surround it. Thanks to the amendment, these rules are now not as stringent as perhaps they once were, alleviating the pressure on those companies who are subject to them.
The MCA’s Far-Reaching Measures
There have been several measures put in place that give precedence to any spending related to CSR, which is a definite step in the right direction. The MCA has made clear the information that relates to businesses that are subject to CSR. Additional measures have also been taken to revise the prevailing cap for fees levied on corporations that are paid to undertake impact assessments.
The Nature of the Rules
When new amendments are made, corporations would expect to see at least some relaxations that would benefit them and their productivity. A brief overview of the changes brought out are as given below:
- The constitution of the CSR Committee is now mandatory where the Company has any amount in its “Unspent CSR Account” in terms of any ongoing project irrespective of the limit of the unspent amount. This committee will then be required to comply with the applicable CSR provisions along with the company’s policy and annual action plan to ensure that all CSR activities are in order. Setting up a CSR committee ensures transparency within and across organisations. This is the Indian government’s overall aim in regard to the compliance of corporate social responsibility of any company.
- CSR provisions have been relaxed to the extent as companies are no longer required to comply with CSR provisions immediately upon ceasing to meet the statutory threshold in the preceding financial year. Earlier the requirement was of non-applicability for the immediately three preceding financial years
- The Amended CSR Rules have now widened the scope of implementing agencies by allowing the companies to undertake their CSR activities also through a section 8 company or registered public trust or registered society exempted under sub-clauses (iv), (v), (vi) or (via) of clause (23C) of section 10 of the Income Tax Act, 1961, in addition to the entities registered under section 12A and approved under 80G of the said Act allowed earlier
- Expenditure on impact assessment reports is now allowed at 2 per cent of total CSR expenditure or Rs. 50 Lakhs, whichever is higher (earlier the limits were 5% or 50 lakhs whichever is lower)
- The format for the Annual Report on CSR activities has been revised, and it is to be annexed to the Board’s reports.
Accountability in Organisations
By having an incentive for impact assessment, the MCA aims to enforce accountability with its CSR amendment. Companies will have to be clear that capital is spent for good causes, in the correct manner to achieve focused goals. Further, any delay in the constitution of a CSR Committee may be viewed as non-compliance.
What Experts Say
Experts say, whilst these new rules may be softer on companies, there are certain processes that have to shift into place before the actioning of the new rules can begin. Nonetheless, as the aim of the government is transparency, the real aim, say, experts, is about encouraging corporate socially responsible activities and sustainability in all organisations.
Recommendations by Experts
Analysts in the corporate sector state that companies require more exposure to the objective of doing better in terms of maintaining a sustainable atmosphere in the workplace. The need of the hour is CSR activities that are incentive-based. This can drive organisations to comply with any CSR amendment and new rules. Regulations ensure that companies function in a manner that is conducive to a sustainable environment. The main idea of CSR activity is to promote social and ethical value systems, focus on morality in the workplace and be more generous to employees. All this, ultimately, ensures more productivity in the workplace.