CSR and COVID-19

Definition of Corporate Social Responsibility (CSR)

CSR can be defined as a Company’s sense of responsibility towards the community and environment (both ecological and social) in which it operates. Companies can fulfill this responsibility through waste and pollution reduction processes, by contributing educational and social programs, by being environmentally friendly and by undertaking activities of similar nature.

Ministry of Corporate Affairs (MCA) has made Corporate Social Responsibility mandatory for certain class of Companies from 01.04.2014 as per the provisions of Section 135 of Companies Act 2013 along with Companies (Corporate Social Responsibility Rules) 2014 & Schedule VII.

CSR Applicability

As per Section 135(1) Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during the immediately preceding financial year, shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.

Provided that where a company is not required to appoint an independent director under sub-section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two or more directors.

Further as per Rule 3(2) of The Companies (Corporate Social Responsibility) Rules, 2014 every company which ceases to meet the thresholds for three consecutive financial years shall not be required to –

(a) constitute a CSR Committee; and

(b) comply with the provisions contained in sub-section (2) to (5) of the said section, Accordingly, CSR provisions once applied it will be applicable for 3 years.

Amount required to be spend on CSR

As per sub-Section (5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.

Treatment of unspent amount of CSR

As per sub-section (6) Any amount remaining unspent under sub-section (5), pursuant to any ongoing project, fulfilling such conditions as may be prescribed, undertaken by a company in persuance of its Corporate Social Responsibility Policy, shall be transferred by the company within a period of thirty days from the end of the financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account, and such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year (which is yet to be Notified).

Activities under CSR

Every company referred to in sub-section (1) required to formulate a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company in areas or subject, specified in  Schedule VII.

CSR expenditure for COVID-19

Globally, the entire economy is grief-stuck with lockdown and corona virus scare. Each and every sector, business and individual have been affected by this sudden storm and as a result World Health Organization (WHO) have classified this spread of corona virus as a pandemic and subsequently the Govt. of India have decided to treat as notified disaster. Keeping the current baffling scenario in mind, the Ministry of Corporate Affairs clarifies that funds spent for various activities under Covid-19 shall be eligible for CSR activity. To bring more clarity into picture, only below mentioned activities will be eligible for treatment under CSR activities:

  • Contribution made to ‘PM CARES Fund’– The Ministry of Corporate Affairs vide Office memorandum F. No. CSR-05/1/2020-CSR-MCA dated 28th March, 2020, clarifies that contribution made to The Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund’ (PM CARES Fund) shall qualify as CSR expenditure under item no (viii) of Schedule VII of the Companies Act, 2013.
  • Please note that donation made to the PM CARES Fund shall be eligible for a 100% deduction under section 80G of the IT Act. As the date for claiming deduction u/s 80G under IT Act has been extended up to 30.06.2020, the donation made up to 30.06.2020 shall also be eligible for deduction from income of FY 2019-20. Hence, any person including the corporate paying concessional tax on the income of FY 2020-21 under new regime can make a donation to PM CARES Fund up to 30.06.2020 and can claim deduction u/s 80G against income of FY 2019-20 and shall also not lose his eligibility to pay tax in concessional taxation regime for an income of FY 2020-21.
  • Contribution made to State Disaster Management Authority–  Contribution made to State Disaster Management Authority to combat COVID-19 shall qualify as CSR expenditure under item no (xii) of Schedule VII of the 2013 and clarified vide general circular No. 10/2020 dated 23rd March, 2020.
  • CSR funds for COVID-19 related activitiesMinistry vide general circular No. 10/2020 dated 23rd March, 2020 has clarified that spending CSR funds for COVID-19 related activities shall qualify as CSR expenditure. It is further clarified that funds may be spent for various activities related to COVID-19 under items nos. (i) and (xii) of Schedule VII relating to promotion of health care including preventive health care and sanitation, and disaster management. Further, as per general circular No. 21/2014 dated 18.06.2014, items in Schedule VII are broad based and may be interpreted liberally for this purpose.
  • Payment of exgratia to temporary /casual/daily wage workersIf any ex-gratia payment is made to temporary /casual workers/ daily wage workers over and above the disbursement of wages, specifically for the purpose of fighting COVID 19, the same shall be admissible towards CSR expenditure as a onetime exception provided there is an explicit declaration to that effect by the Board of the company, which is duly certified by the statutory auditor.

Activities in relation to Covid-19 which shall not be treated as a CSR activity

  • ‘Chief Minister’s Relief Fund’ or ‘State Relief Fund for COVID-19’ is not included in Schedule VII of the Companies Act, 2013 and therefore any contribution to such funds shall not qualify as admissible CSR expenditure.
  • Payment of salary/ wages in normal circumstances is a contractual and statutory obligation of the company. Similarly, payment of salary/ wages to employees or to temporary/casual/daily wage worker/s even during the lockdown period is a moral obligation of the employers, as they have no alternative source of employment or livelihood during this period. Thus, payment of salary/ wages to employees and workers during the lockdown period (including imposition of other social distancing requirements) shall not qualify as admissible CSR expenditure.

Schedule VII includes

(i) Eradicating hunger, poverty and malnutrition, promoting health care including preventinve health care and sanitation including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water;

(ii) promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects.

(iii) promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups;

(iv) ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agro forestry, conservation of natural resources and maintaining quality of soil, air and water including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga;

(v) protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional art and handicrafts;

(vi) measures for the benefit of armed forces veterans, war widows and their dependents;

(vii) training to promote rural sports, nationally recognised sports, paralympic sports and olympic sports;

(viii) contribution to the prime minister’s national relief fund or any other fund set up by the central govt. for socio economic development and relief and welfare of the schedule caste, tribes, other backward classes, minorities and women;

(ix) Contribution to incubators funded by Central Government or State Government or any agency or Public Sector Undertaking of Central Government or State Government, and contributions to public funded Universities, Indian Institute of Technology (IITs), National Laboratories and Autonomous Bodies (established under the auspices of Indian Council of Agricultural Research (ICAR), Indian Council of Medical Research (ICMR), Council of Scientific and Industrial Research (CSIR), Department of Atomic Energy (DAE), Defence Research and Development Organisation (DRDO), Department of Biotechnology (DBT), Department of Science and Technology (DST), Ministry of Electronics and Information Technology) engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs);

(x) Rural development projects

(xi) Slum area development.

Explanation.- For the purposes of this item, the term `slum area’ shall mean any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force.

(xii) Disaster management, including relief, rehabilitation and reconstruction activities.

Highlights of Proposed Companies (Amendment) Bill, 2020 on CSR

Credit allowed for excess amount spent on CSR for indefinite periodAs per the draft Companies (Amendment) Bill, 2020 If a company spends an amount in excess of the requirements, such company may set off such excess amount against the requirement to spend for succeeding financial years.

Penal provision:- The Companies (Amendment) Act, 2019 introduced penal provisions (which is yet to be Notified), according to that non compliance of Sec 135(5) and (6) attracts the following penalty-

  • Company shall be punishable with fine of Rs. 50,000 to Rs. 25 Lakh and     
  • Every officer of such company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine of Rs. 50,000 to Rs. 5 Lakh

The above provisions substituted by The Companies (Amendment) Bill, 2020 as follows-

  • Company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or one crore rupees, whichever is less and
  • Every officer of the company who is in default shall be liable to a penalty of one-tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, as the case may be, or two lakh rupees, whichever is less

Exemption from the requirements of constituting CSR Committee:- As per the proposed Bill Where the amount to be spent by a company under sub-section (5) does not exceed fifty lakh rupees, the requirement under sub-section (1) for constitution of the Corporate Social Responsibility Committee shall not be applicable and the functions of such Committee provided under this section shall, in such cases, be discharged by the Board of Directors of such company.

Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. The author does not accept any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied without express written permission of the author


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