How To Improve Monitoring of CSR

Union Home Secretary, on 7 October 2015 submitted its report on how to improve monitoring of CSR spending to government.

The panel was set up by the Union Corporate Affairs Ministry to suggest steps to improve monitoring of CSR spending.

The panel in its report recommended uniform tax treatment for all CSR (Corporate Social Responsibility) activities under Companies Act 2013 and leniency towards non-compliant companies in the first 2 to 3 years of the law.
Main Highlights of the Report
• It suggests that under the Companies Act, 2013, certain class of profitable entities is required to spend at least 2 percent of their three-year annual average net profit towards CSR activities. The first year of implementation of Companies Act was financial year that lasted from April 2014 to March 2015 and compliance reports would be available by the end 2015.
• It says that the differential tax treatment for expenditure on various CSR activities may create distortion in the allocation of funds across development sectors.
• It says that there should be uniformity in tax treatment for CSR expenditure across all eligible activities. At present, certain activities such as contribution to the Prime Minister's National Relief Fund qualify for exemption.
• It also asked to provide further clarity on applicability of section 135, which deals with CSR provisions.
• It also says that the leniency may be shown to non-compliant entities in initial two or three years to enable them to graduate to a culture of compliance, since these years would be a period of learning for all the stakeholders. The liberal view can be taken at least for smaller companies, it added.
• It says that the government should have no role in monitoring of SCR expenditure by corporate and this should be the job of their respective boards.
• It also suggests that government should have no role to play in engaging external experts for monitoring the quality and efficacy of CSR expenditure of companies.