These new rules are intended to promote socio-economic development in rural areas, improve education, eradicate hunger and promote gender equality, among other activities. The rules include a mandate for large business entities to spend a minimum of 2% of their average net profit for the preceding three years on CSR initiatives, reports Nair & Co.’s International Expansion Team.
Public and private companies operating in India and meeting any of the following minimum criteria any time during the fiscal year are required to comply with the new CSR measures:
* Total net worth = Rs. 5 billion (~US $82 million), or
* Turnover = Rs. 10 billion (~US $163 million), or
* Net profit = Rs. 50 million (~US $817,000)
Companies that fall within the above thresholds must establish a CSR Committee made up of 3 or more directors. This committee is responsible for establishing the companies CSR policies, recommending activities, monitoring expenditures and filing annual reports accordingly, the first of which is due April 2015. Further, the CSR policy must be made publicly available.
Significant aspects of the new CSR rules are as follows:
1. CSR Committees are responsible for establishing their companies CSR Policies. Those shall state that:
* Activities conducted by the company as per the board’s approval must be in compliance with the CSR policy and its CSR committee decision.
* Surplus obtained out of CSR projects or activities will not be considered as a part of the company’s business profit.”
2. In addition to others, the following activities will be considered under CSR:
* Rural development projects.
* Healthcare and sanitation projects.
* Safe drinking water projects.
* Promoting education.
* Protecting natural heritage and culture.
3. The following activities will not be considered under CSR:
* Contributions to political parties.
* Activities conducted for the benefit of employees and their families.
* CSR activities outside of India.
It is important to note that companies may work together on CSR activities; provided they prepare separate reports for project expenditures. In addition, companies may execute their CSR works through a registered trust or society or a separate charitable entity, subject to certain conditions. Companies are allowed to spend 5% of their total CSR expenditure on manpower every year.
Nair & Co. advises both domestic and foreign companies operating in India to become familiar with the new CSR rules and implement the pertinent policies and procedures to avoid non-compliance and subject the company to additional scrutiny.
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