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India now only country with legislated CSR

Law mandates that all companies, including foreign firms, with a minimum net worth of Rs 500 cr, turnover of Rs 1,000 cr and net profit of at least Rs 5 cr, spend at least 2% of their profit on CSR

IANS  |  New Delhi 

With the implementation of the new company law from April 1, India has become the only country in the world with legislated corporate social responsibility (CSR) and a spending threshold of up to $2.5 billion (Rs15,000 crore).

The new law mandates that all companies, including foreign firms, with a minimum net worth of Rs 500 crore, turnover of Rs1,000 crore and net profit of at least Rs 5 crore, spend at least two percent of their profit on CSR. According to industry estimates, around 8,000 will fall into the ambit of the CSR provisions and this would translate into an estimated CSR spend of $1.95 billion to $2.44 billion. With higher economic growth and increase in profits, this mandatory spending will go up. "India is the only country that has made legislation for CSR spending," Sai Venkateshwaran, partner and head of accounting advisory services at KPMG India, told IANS. He said the new law would lead to a significant increase in spending by on CSR activities. "Many big companies have been actively engaged in the CSR activities, but the number is low. The new law will lead to a significant increase in the numbers," said Venkateshwaran, adding the mandated spending would be in the range of Rs10,000 crore to Rs15,000 crore annually. Sidharth Birla, president of industry body FICCI, said the businesses by and large welcome the new legislation. However, some issues continue to trouble that need to be addressed by the regulator. "This is an evolutionary concept and will gradually evolve over a period of time.

Industry is therefore anxious on the implementation of this new provision," Birla told IANS. The new Companies Act 2013 that came into effect from April 1, 2014, replaced six-decade old legislation Companies Act 1956. CSR has been made mandatory under the new regulation and there are provisions of penalties, in case of failure. Venkateshwaran said the industries' concerns about the new legislation were largely related to taxation and limit on activities that fall under the ambit of CSR. Birla also shared a similar view and said: "The biggest concern of Industry is with respect to the impact of CSR contribution from a tax deductibility point of view." "Industry hopes that the ministry of finance will find it fit to ensure CSR spend remains tax-deductible, more so since this spend is an integral cost of responsible business," he said. Under the current income tax law, the CSR spending cannot be treated as expenditure. It will be part of profit and attract taxes. As per the current law, unless expenditure is in the course of the business of the company, the same is disallowed and the question may arise as to whether CSR expenditure is incurred in the course of the business of the company or not. Therefore, the CSR Rules could lead to substantial expenses being disallowed in course of tax assessments. "Unless the Income Tax law is also changed simultaneously, this could lead to years of protracted litigation and disputes," said Birla.

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First Published: Thu, April 03 2014. 17:50 IST