Context: Recently, the Ministry of Commerce has clarified that the contributions to the Chief Minister’s Relief Fund or the State relief fund will not qualify as Corporate Social Responsibility (CSR) expenditure, while any donation to the PM CARES Fund will.
Key Points

• It has said in a circular that the Chief Minister’s Relief Fund’ or ‘State Relief Fund for COVID-19’ is not included in Schedule VII of the Companies Act, 2013, and therefore any contribution to such funds shall not qualify as admissible CSR expenditure,”
• Contribution made to State Disaster Management Authority to combat COVID-19 shall qualify as CSR expenditure under Schedule VII of Companies Act.
• Opposition parties slammed the circular as discriminatory and sought an immediate amendment to Schedule VII of the Companies Act to permit the States to access these funds which could save millions of lives.
• Similarly, payment of salary/ wages to employees and workers during the lockdown period, including imposition of other social distancing requirements, would also not qualify under the CSR framework.
• However, Contributions to the Prime Minister's Citizen Assistance and Relief in Emergency Situations Fund (PM-CARES Fund) would qualify as CSR spending and donations to the State Disaster Management Authority to combat Covid-19 can be counted as admissible CSR expenditure.

About Corporate Social Responsibility

• Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially accountable.
• It is also called corporate citizenship.
• By practicing CSR, companies can be conscious of the kind of impact they are having on all aspects of society including economic, social, and environmental.
• India is the first country in the world to mandate CSR spending along with a framework to identify potential CSR activities.

Current provisions governing CSR

• In India, the concept of CSR is governed by clause 135 of the Companies Act, 2013.
• The CSR provisions within the Act is applicable to companies with an annual turnover of 1,000 crore and more, or a net worth of Rs. 500 crore and more, or a net profit of Rs. 5 crore and more.

Activities which may be included by companies in their Corporate Social Responsibility Policies Activities relating to:—

• eradicating extreme hunger and poverty;
• promotion of education;
• promoting gender equality and empowering women;
• reducing child mortlity and improving maternal health;
• combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases;
• ensuring environmental sustainability;
• employment enhancing vocational skills;
• social business projects;
• contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government or the State Governments for socio-economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women; and such other matters as may be prescribed.

Amount to be spent

• Companies are required to spend, in every financial year, at least 2% of their average net profits generated during the 3 immediately preceding financial years.
• For companies that have not completed 3 financial years, average net profits generated in the preceding financial years shall be factored in.