The ministry of corporate affairs (MCA) proposes to mandate companies to spend two per cent of their average net profit for the past three years on fulfilling their corporate social responsibilities (CSR) even if their group makes consolidated net loss. According to a Business Standard report the draft rules for the new Companies Act, on which feedback is invited till October 8, this spend is based on the stand-alone net profit of the company, irrespective of loss or gain of the group.
If a company fails to spend the amount, it will have to explain the reason for it in its annual reports. To ensure spending money on social development, the new rules also say that activities benefiting a company's own employees and families will not qualify as CSR spending. Besides, the draft proposed that contributions to the Prime Minister’s National Relief Fund and other Central and state government funds will continue to be eligible for CSR activities.
The CSR committee of a company will be responsible for specifying the projects and programmes to be undertaken by the company. The committee is also required to monitor and report the activities to the government.
Read the complete report here