CSR News: MCA issues clarifications w.r.t. COVID-19 donations

The Ministry of Corporate Affairs (MCA) provided clarifications on CSR Funds for COVID-19 donations stating that such spending would be an eligible CSR activity. The items listed in Schedule VII could be interpreted liberally for this purpose.

MCA vide an office memorandum clarified that Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) qualifies as CSR expenditure. MCA also issued FAQs to address certain queries raised by companies pertaining to the eligibility of expenditure related to COVID-19 activities as CSR spend. In the FAQ, MCA not only clarified what was stated in both the previous circulars but also dealt with issues pertaining to contributions made to state funds and payment of wages falling within the ambit of CSR expenditure.

MCA stated that since Chief Minister’s Relief Fund or State Relief Fund for COVID-19 is not included in Schedule VII of the Act, any contribution made to these funds would not qualify as admissible CSR expenditure. However, contributions made to the State Disaster Management Authority to combat coronavirus disease would qualify as CSR expenditure. MCA further clarified that payment of wages or salary to workers, contract labour, casual or daily wage workers, would not qualify as CSR expenditure as the same is contractual.

However, ex-gratia payment made to temporary or casual or daily wage workers, especially for purposes of COVID-19 related hardships, would qualify as a CSR expenditure as a one-time exception, provided that an explicit declaration to this effect is made by the Board of the company and is duly certified by the statutory auditor.

New changes in CSR framework

The MCA had invited public comments on the Draft Companies (CSR Policy) Amendment Rules, 2020 (Draft Rules). Some of the key changes proposed under the Draft Rules are as follows:

– Amend definition of key terms including CSR by providing certain exclusions to the definition, such as: CSR activities that significantly benefit 25% or more of the employees of the company and their families; Political contributions and any activity undertaken outside India or in ordinary course of business

– CSR Policy must provide a clear approach and direction, as per recommendations of the CSR Committee, for selection, monitoring and implementation of CSR activities

– Chief Financial Officer has been identified as the person responsible for ensuring utilization of the CSR funds

– Two or more companies can collaborate to undertake a CSR project as long as each of them is able to report on the project separately

– Definitions for terms such as ‘International Organization’, ‘Ongoing Projects’ and ‘Public Authority’ have been provided under the draft rules

– Registration of implementing authorities is mandatory under the Draft Rules

– Engagement with International Organizations has been allowed for implementation of CSR Policy with prior approval of Central Government

– Addition of Rule 10 which provides for the establishment of a National Unspent Corporate Social Responsibility Fund by the Central Government for transfer of the unspent CSR funds, and pending setting up of such fund, to any fund specified in Schedule VII

Source: Mondaq