The Ministry of Corporate Affairs has notified changes in the Companies (Corporate Social Responsibility Policy) Rules, 2014 saying CSR activity can be done through “a company established under section 8 of the Act or a registered trust or a registered society, established by the central government or state government or any entity established under an Act of Parliament or a State legislature,” as per the rules. Section 8 companies are generally not-for-profit entities.
This means that corporates now have more flexibility to implement CSR activities through non-profit entities and societies set up by governments that do not have a 3 year track record in undertaking such projects. Hence with this latest amendment to rules pertaining to Corporate Social Responsibility (CSR), entities will now have more choice available to carry out CSR projects.
Under the Companies Act, 2013, certain class of profitable companies are required to shell out 2% of their 3 year annual average net profit towards CSR activities. This came into effect on April 1, 2014.
Previously, only those NGOs with 3 years of established track record in undertaking similar programmes or projects were permitted to carry out CSR works on behalf of companies.
Section 8 entities, registered trusts or registered societies that have been set up by the company concerned, either alone or with another company, are also exempted from the 3 year track record requirement.
However, for entities, that are not set up by the governments or the company concerned, should compulsorily have an established three-year track record to carry out CSR works, as per the notification dated May 23, 2016.
“… such company or trust or society shall have an established track record of three years in undertaking similar programmes or projects; and the company has specified the projects or programmes to be undertaken, the modalities of utilisation of funds of such projects and programmes and the monitoring and reporting mechanism,” it noted.
Earlier in March, Corporate Affairs Minister Arun Jaitley had informed the Rajya Sabha that as many as 460 listed firms had disclosed spending INR 6,337.36 Cr. towards CSR activities in the financial year 2014-15.