Slum Redevelopment a CSR Activity: Ministry of Corporate Affairs

Slum-redevelopment, road safety awareness and consumer protection services will be treated as Corporate Social Responsibility (CSR) activities, according to clarifications issued by the ministry of corporate affairs in response to queries from stakeholders.

BJP's election manifesto had promised to usher in a low-cost housing policy that would ensure every family in India a home by 2022. The ministry, in a circular, has clarified that slum-redevelopment or housing for economically weaker sections could be covered under the eligible CSR category of 'measures taken for reducing inequalities faced by socially and economically backward groups'.

Activities relating to road safety promotion, which is a dire need in India, are also likely to get a major fillip as the ministry has clarified these would also be treated as eligible CSR activities. Promoting road safety awareness through print, audio and visual media would qualify as a CSR activity under the broad head of 'promoting education'; providing trainers to drivers would fall under 'promoting vocational skills'; and social projects like giving medical and legal aid, treatment to road accident victims would fall under the eligible category of 'promoting health care', explains the circular.

Any project meant for development of rural India will be treated as a 'rural development' project and will be an eligible CSR activity. Likewise, supplementing government schemes like mid-day meals would also qualify as CSR for alleviation of poverty and malnutrition. Renewable energy projects would be eligible for promoting 'environmental sustainability'.

Responding to a query from the Consumer Education and Research Centre, the ministry has clarified that consumer education and awareness related activities would also be eligible as CSR towards 'promoting education'. Likewise, donations to IIM (A) for renovation of classrooms would be an eligible CSR activity to promote education.

While the ministry has provided various illustrative clarifications, it has also stressed that the 10 categories of eligible activities outlined in Schedule VII of the Companies Act, 2014 'must be interpreted liberally'.

Activities outlined in this schedule are wide ranging and include those relating to promoting education, promoting preventive healthcare, rural development and even protection of national heritage, art and culture.

Salaries paid by companies to regular CSR staff and volunteers can also be factored into the project cost as part of the CSR expenditure. However, one-off events undertaken by India Inc, such as sponsoring marathons, awards, sponsorship of TV programmes, will not qualify as eligible CSR activities. Expenses incurred by India Inc for fulfilment of any regulations such as Labour Laws and Land Acquisition Act also would not count as CSR expenditure, adds the circular. Even sustainable urban development and urban public transport system are not eligible CSR activities.

Experts point out that India Inc should proceed with caution. "The final rules to the Companies Act are clear that CSR activities do not include normal business activities. Thus, even if slum redevelopment qualifies as a CSR activity, a grey area would crop up, if a slum area is taken up for construction of villas and these slum dwellers are rehabilitated by the builder."

The CSR provisions contained in The Companies Act, 2014, requiring large companies meeting certain financial criteria to either comply with the CSR spend or report non-compliance kicked in from April 1. These companies are required to spend 2% of their average net profit of the last three years on CSR activities.

Fillip to trusts, societies 

Expenditure incurred by a foreign holding company for CSR activities in India, if routed through its Indian subsidiary, will qualify as CSR spend of the Indian subsidiary. In addition, while the Rules to the Companies Act, 2014 had permitted India Inc to carry out CSR activities through a trust, registered society or non profit company, the circular goes a step ahead. Contribution by India Inc towards the corpus of such a trust, society or towards the capital of the not-for-profit company will also qualify as CSR spend. The conditions prescribed are that these entities should be created exclusively for carrying out CSR activities or the corpus should be created exclusively for carrying out eligible CSR activities.

Times of India, New Delhi, 26-06-2014

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