Government Amends CSR Regulations, Expands Flexibility for Corporations
Government Allows Companies to Invest up to 10% of CSR Funds in Zero Coupon Instruments
In a move aimed at providing ease of compliance to companies and facilitating funding for public welfare projects, the government has introduced a new provision under the Companies Act, 2013. The amendment allows companies to invest up to 10 per cent of their CSR funds in zero coupon zero principal instruments issued by not-for-profit organisations through a social stock exchange.
Under the Companies Act, 2013, a certain class of profitable companies are required to shell out at least 2 per cent of their three-year average annual net profit towards CSR (Corporate Social Responsibility) activities in a particular financial year. The corporate affairs ministry has introduced the item 'subscription to zero coupon zero principal instruments on Social Stock Exchange' in Schedule VII, which pertains to activities allowed for CSR activities under the Companies Act.
This amendment is aimed at providing significant ease of compliance to the companies and will also help not-for-profit organisations (NPOs) to raise funding for public welfare projects in a transparent and regulated manner. To facilitate the implementation of CSR through zero coupon zero principal instruments, amendments have been done in the CSR Policy Rules, 2014. Now, under the rules, the definition of NPO and zero coupon zero principal instrument has been introduced.
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Expenditure incurred by the CSR-mandated companies for such instruments shall not exceed 10 per cent of the total CSR expenditure for the particular financial year. This move is expected to help social enterprises access a wider pool of capital and further the transparent and credible mode of funding CSR projects by the companies.
| Category | Expenditure Limit |
|---|---|
| CSR Fund Investment | Up to 10% |
| Total CSR Expenditure | Not exceeding 10% |
Anshul Jain, Partner Regulatory at consultancy PwC India, explained that companies can now invest their CSR funds into such instruments issued through an SSE. This move is seen as a positive step towards facilitating the implementation of CSR activities and enabling social enterprises to access a wider pool of capital.
Investor Takeaway
The amendment to CSR regulations may positively impact the corporate social responsibility activities of companies, potentially leading to increased transparency and funding for public welfare projects.
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