CB Bureau
The possibility of subtle ‘pressures’ by
political leaders asking for ‘party fund’ under the new CSR regulation was one
of the major worries of many decision makers at corporate groups. However, the
new rules released on 27 February 2013 clearly state that political endowment
cannot be called corporate social responsibility (CSR) and funds given as donations
to political parties do not qualify as CSR spends.
The ministry of corporate affairs released
final CSR rules after the first draft of the same was put in the public domain
for discussion, consultation and comments. The notification states that ‘contribution
from companies made, directly or indirectly, to any political party won’t be considered
CSR activity.’
The norms are also applicable to all foreign
companies that have branches or project offices in India. The law mandates
these companies to have India-specific CSR programmes within the country. However,
profit from foreign branches and dividend received from other companies in
India will be excluded from the net profit criteria.
Companies with a net worth of at least Rs
500 crore or a turnover of at least Rs 1,000 crore or a net profit of at least
Rs 5 crore will have to spend two per cent of their net profits toward CSR. The
CSR report will have to be attached along with their annual financial report.
In the case of a foreign company, its balance sheet will have to have an
annexure on CSR spend.
The notification, effective from 1 April
this year, clearly states that any funding by companies ‘directly or indirectly’
to any political party won’t be considered as CSR activity. The notification
comes merely months before general elections in the country. This means that
the fund that companies were putting in their ‘electoral trusts’ will not
qualify to be the company’s spend towards CSR.
Last year, the government had provided a
new structure for political funding by companies, under which these entities
could set up ‘electoral trusts’ for providing funds to registered political
parties. The ‘electoral trust’ structure also provides for a few tax benefits
against funds provided to political parties. More than a dozen corporate entities,
including those related to the Ambanis, Tatas, Mittals, Birlas and Vedanta,
have already set up such trusts as they are the major contributors of electoral
funds.
A few development sector activists and
social organizations including CauseBecause had voiced concern over this as it
was feared that a major chunk of CSR funds might go in electoral trusts.