Key Aspects of India’s Corporate Social Responsibility Mandate Clarified

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DELHI – The Ministry of Corporate Affairs (MCA) released a new circular last Wednesday that clarifies certain aspects of India’s corporate social responsibility (CSR) mandate.

General Circular No. 21/2014 (dated June 18, 2014) clarifies a number of aspects of the CSR mandate, including specifying items that can be included under Schedule VII of the Companies Act and what can and cannot be considered a CSR expenditure.

Among the provisions outlined in Section VII of India’s Companies Act 2013, the CSR requirement has received the most attention by far from domestic and foreign firms.

Often referred to as the “2 percent requirement,” India’s CSR requirement has made India the first country in the world to mandate that qualifying companies contribute at least 2 percent of their average net profits from the preceding three years to CSR.

RELATED: India’s Corporate Social Responsibility Mandate: The Companies Act 2013

Most notably, Circular No. 21/2014 clarifies:

  • One-off events such as marathons, awards, charitable contributions, advertisements, sponsoring TV programs, etc. do not qualify as CSR expenditures and should be checked against Rule 4(1) of the Companies CSR Rules, 2014.
  • Expenses incurred for the fulfillment of any Act/Statute do not count as CSR expenditures.
  • Salaries paid to CSR staff and volunteers participating in CSR activities can be factored into a CSR project cost as party of the CSR expenditure.
  • Expenditures incurred by a foreign holding company for CSR activities in India will qualify as CSR expenditure of that company’s Indian subsidiary.

Entries in Schedule VII of the Companies Act 2013 should be “interpreted liberally” to capture the essence of the items when determining if an activity in pursuance of CSR policy relates to an activity listed in Schedule VII. The Circular provides the following table for guidance on this point:

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