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No Criminalisation of CSR Non-Compliance

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A high-level committee chaired by Injeti Srinivas, secretary, corporate affairs ministry, has suggested removing the criminalisation of non-compliance with CSR norms. The committee has recommended that non-compliance of CSR should be made a civil offence and moved to a penalty regime.

The committee submitted its recommendations to Finance Minister Ms Nirmala Sitharaman suggesting that CSR expenditure be made tax-deductible, in order to incentivise CSR spending by the companies. Apart from this, it has suggested a provision to carry forward unspent CSR balance for three to five years.

The committee has also said that CSR should not be used as a “means of resource-gap funding for government schemes”.

According to the new CSR norms under Section 135 of the Companies Act a company has to earmark a part of its profit for social activities and transfer all unspent amount to an escrow account if it is an ongoing project.

This account will be opened by the company concerned in a bank and be called the unspent corporate social responsibility account.

The CSR expenditure which remains unspent in three years would be transferred to any fund specified in Schedule VII of the Companies Act such as the Swachch Bharat Kosh, the Clean Ganga Fund, and the Prime Minister’s Relief Fund.

The central government funds should be discontinued as CSR spend, the committee report said and instead a specially designated fund should be created for transfer of unspent CSR money beyond three to five years.

The committee has recommended that Schedule VII be aligned with the sustainable development goals to include sports promotion, senior citizens’ welfare, the welfare of differently-abled persons, disaster management, and heritage protection.

The idea behind this is to ensure that the CSR amount should be spent by the company — “it must not be lying with the company.”

It has also suggested a third-party assessment of major CSR projects and bringing CSR under the purview of a statutory financial audit. CSR spending will have to become part of the financial statements of the company. The committee has said that companies having CSR prescribed amount below 50 lakh rupees may be exempted from constituting a CSR committee.

The government may identify 5 per cent of the CSR mandated companies on a random basis for third-party assessments.

The other recommendations of the committee include developing a CSR exchange portal to connect contributors, beneficiaries and agencies, allowing CSR in social benefit bonds and promoting social impact companies.

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Regards,
The CSR Journal Team

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