Expressing concerns over the “prescriptive” nature of CSR norms, industry body CII has sought changes in the social welfare spending rules for corporates besides seeking clarity on taxation aspect.
The Confederation of Indian Industry (CII) has also said that CSR rules should be in force only after three years.
These issues have been raised by the industry body in a detailed representation on the new companies law made to the Corporate Affairs Ministry earlier this month.
The Companies Act, 2013, whose many provisions have come into force from April 1, provides for wide ranging changes in the way corporates are governed in the country.
Among others, certain class of companies are required to shell out at least two per cent of their three year annual average net profit towards Corporate Social Responsibility (CSR) activities. It would be applicable for companies having at least Rs 5 crore net profit, or Rs 1,000 crore turnover or Rs 500 crore net worth.
“Industry is apprehensive that implementation of this provision (CSR) is bound to throw up challenges because of the rather prescriptive manner in which rules have been drafted.
“There is huge practical concerns on flexibility within legitimate boundaries, and how the monitoring and interpretation of companies’ efforts will take place,” CII said in the representation.
Further, the industry grouping said the rules do not provide clarity on the taxation front.
“There is no reference to tax treatment of CSR expenses - something that falls under the exclusive domain of the Income Tax law. There needs to be clarity and alignment of the Rules with the existing income tax regulations. The question is whether CSR spend - now mandated by law - can be treated as a business expenditure,” it said.
The industry also noted it is extremely challenging for companies to follow the CSR rules since it has come into effect from April 1, 2014.
“Asking the companies to spend two per cent of average profits of the preceding three years has come at a time when most of the sectors in the Indian industry are passing through tough times and therefore, the effective date of provisions on CSR should be shifted to become effective three years from now,” the grouping said.
The representation, running into more than 60 pages, has also suggestions on various other aspects of the new law, including mergers and amalgamations, one person company, independent directors and related party transactions.
