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Indian companies may be able to trade surplus CSR funds under SSE

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In a big move, companies which are spending heavily under Corporate Social Responsibility (CSR) will soon be able to trade their excess component. This has been done on the recommendations of market watchdog SEBI’s high powered committee on Social Stock Exchange (SSE). Under this dispensation, companies that are spending more than the limit under the CSR rules can sell this surplus to those firms which have failed to meet their annual quota.
Currently, the excess CSR spend can’t be carried forward. SEBI has sought stakeholders views by June 30 after which the final guidelines will be put in place.

List Certificates

As per the suggestions, companies with surplus CSR spends would be able to list their certificates on the exchange platform for trading. The idea is somewhat similar to the Reserve Bank of India’s priority sector lending certificate trading platform.
Under SSE, the actual fund will be transferred from one company to the other against the CSR certificate. As per Companies Act 2013, eligible companies will have to spend 2% of their net profit of three preceding years on CSR. The committee has suggested that CSR certificates remain valid for 3-5 years and not be traded more than once. Social Stock Exchanges will be allowed to charge a small flat fee for facilitation of trading.
“Many-a-times companies’ CSR funds remain unutilised so a third party platform can connect the eligible entities with excess and deficit spends,” the recommendations stated.

SSE Origins

The concept of SSE was first mooted in the Union Budget of 2019. The markets regulator was assigned to suggest a road map after which a high powered committee was formed under Ishaat Hussain comprising social entrepreneurs, voluntary organisations, SEBI officials from Corporate Finance Department and Investment Management Department, and representative from the Finance Ministry.

Role of SSE

As per the recommendations, the SSE will have two primary roles, to effectively deploy the fundraising instruments and structures available under the regulatory guidelines towards social enterprises and to foster overall sector development by creating a capacity building unit.
Besides structure and ecosystem for Social Stock Exchanges, SEBI committee has also proposed tax benefits, like retaining section 80G, allowing corporates to deduct CSR expenditure from their taxable income, increasing the limits under the IT Act on charitable institutions raising funds from commercial or semi-commercial activities to 50% from the current 20% etc.

Source: Zee Business