Firms may have to earmark 2% of profit for CSR under Cos Bill

The government is likely to make it mandatory for big companies to earmark at least 2 per cent of their net profit for corporate social responsibility (CSR) activities in the new Companies Bill.

"The Ministry of Corporate Affairs has agreed that the Bill may now include provisions to... Ensure that every year at least 2 per cent of its (companies') average net profits during the three immediately preceding financial years shall be spent on CSR activities," an official statement said.

The new provisions will apply to companies having a net worth of Rs 500 crore or more, or a turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more, during a year.

Directors will have to make suitable disclosures in this regard in their report to members, it added.

"...The committee feels that separate disclosures required to be made by companies in their Annual Report by way of CSR statement indicating the company policy as well as the specific steps taken thereunder will be a sufficient check on non-compliance," it said.

The ministry's statement comes after the Parliamentary Standing Committee on Finance presented its report on the new Companies Bill in the Lok Sabha.

It further said that in case a company does not have adequate profits or is not in a position to spend the prescribed amount on CSR activities, the directors would be required to give suitable reasons in their report to members.

The Companies Bill, 2009, was re-introduced in Parliament in August last year, after which it was sent to the Standing Committee for vetting.

The revised Bill is expected to be presented in Parliament for passage in the Winter Session.