Companies have time till 2024 to use CSR fund

By Hindustan Times

August 16, 2019

Companies have time till 2024 to use CSR fund

The government has clarified that amended corporate social responsibility (CSR) laws are with prospective effect and companies have time until July 2024 to use accumulated CSR funds in projects of their choice -- an assurance that should bring relief to corporate entities and executives confronting punishment for violation of the guidelines.

Parliament in July passed amendments to the Companies Act under which unspent CSR allocations would have to be transferred to a fund specified by the government. Under the amended rules, company executives could face a three-year jail term and a penalty of Rs.50,000 to Rs.5 lakh, or both; and their employers a penalty of between Rs.50,000 and Rs.25 lakh for breach of CSR rules.

Corporate affairs secretary Injeti Srinivas allayed concerns that the government wants to appropriate unspent CSR funds to finance its own welfare programmes.

“The government’s intent is clear regarding the unspent CSR funds. It is neither to meet the budgetary gap nor for deficit financing. We will be too happy if companies utilise all unspent CSR money in projects of their choice and nothing is left [to be deposited in the proposed government fund],” Srinivas said in an interview.

While leaving the window open until July 2024 for companies to use up their accumulated CSR money, the government is also working on setting up a national corpus with a “strong governance structure” to which unspent funds will need to be transferred if the deadline is not met, Srinivas said.

The corpus will be overseen by a body that will include industry representatives who are at the forefront of efforts to promote the causes of society and the environment, he said.

The law mandates that firms with a net worth of at least Rs. 500 crore or revenue of Rs.1,000 crore or net profit of Rs. 5 crore should spend at least 2% of their net profit on activities such as on activities such as sanitation, education, healthcare, poverty alleviation and the environment, among others.

According to an industry estimates, about Rs 50,000 crore has been spent on CSR since 2014-15 and around 30,000 crore still remain unspente. On average, annual CSR expenditure is about Rs 15,000 crore.

Srinivas said concerns that the rules have been amended to penalise defaulters were unfounded. “The law was always there. And, any provision in law is mandatory in nature. The provision was to ‘comply’ or ‘explain’. But, it did not mean that the monetary obligation was extinguished.”

On legal action against defaulters, he said, “CSR defaults are compoundable offences.” The government has no intent to pursue such cases as criminal offences, he said ,adding that “there must be some deterrent in terms of monetary penalty.” Compoundable offences are those offences where the complainant (the government in CSR matters) agrees to a compromise with a violator of the law.

The government has already sent show-cause notices to more than 5,000 companies for defaulting on their mandatory CSR obligations, two government officials said on condition of anonymity.

“Prosecution in 400 has already been ordered, but these cases have not been pursued as criminal cases ,and the matter can be settled through compounding. About 60 cases have already been settled through compounding. In some cases, extra time up to two years has been given to comply,” one of the officials said.

Addressing an interactive session at the Confederation of Indian Industry (CII) on Friday, finance and corporate affairs minister Nirmala Sitharaman assured industry that she would review the provision on criminal penal provisions. She said CSR notices with retrospective effect were unacceptable.

Srinivas said that the changes are prospective. “We understand that sometime a company is unable to spend the CSR funds in one year because of several reasons. That is why we have provided them a three-year period to utilise the same. Only the sum has been ring-fenced to ensure that the money is not diverted elsewhere. Companies have one year [2019-20] plus three years to act. If they are not able to utilise the fund even in four years, the same will be transferred to a government-notified fund,” he said.

The amendments, enacted on July 31 this year, provide tor unspent CSR funds to be transferred by a company to its “Unspent Corporate Social Responsibility Account” in a bank within 30 days of the end of a financial year. According to the Act, the amount deposited in the bank shall be spent by it in CSR activities within a period of three financial years, “failing which, the company shall transfer the same to a Fund specified in Schedule VII”, within a period of 30 days from the date of completion of the third financial year.

“Three years’ time limit is fair enough for companies to spend the unspent CSR amount for good causes in a country like India which suffers from acute social and economic disparity,” said Rachit Sharma, deputy general manager of Taxmann, a tax consulting firm.

“The erstwhile CSR norms were toothless; the legislature has now strengthened the CSR provisions with inclusion of penal consequences. Making compliance of the CSR Provisions is a very a serious affair now. Earlier it was comply or explain model, i.e. the companies were required to mention in a board report about reasons for not spending CSR {funds}. Now companies have either to spend as per CSR norms or deposit {the money} with the government in specified funds,” he said.




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