COVID-19 expense of Companies to be counted as CSR expenditure

On 23rd March 2020 the Ministry of Corporate Affairs (hereinafter, ‘MCA’) announced that expenditure for measures taken to tackle the COVID-19 outbreak will be included in the corporate social responsibility (hereinafter, ‘CSR’) activity of the respective companies. The CSR rules make it mandatory for large firms to set aside at least 2% of their average net profit to contribute to socially responsible activities. The rules are applicable to firms with at least rupees five crore net profit or rupees thousand crore turnover or rupees five hundred crores net worth. Further, the government also announced that all donations made to the PM- CARS Fund will be eligible for a 100% tax reduction under the Indian laws.

In light of this the notification issued by the MCA reads, “keeping in view of the spread of novel Coronavirus (hereinafter, ‘COVID-19’) in India, its declaration as a pandemic by the World Health Organisation, and, the decision of the Government of India to treat this as a notified disaster, it is hereby clarified that spending of CSR funds for COVID-19 is eligible CSR activity.” This was done with the intention of inviting more support and funds from the public since there are various ways in which a company can use its CSR funds to help the country fight COVID-19.

The MCA stated that the funds spent on the promotion of healthcare, including preventive healthcare, sanitation, and disaster management would squarely fall within the definition of a company’s CSR obligations and responsibilities. Some of the expenditures that are considered as CSR include, contributions made to state disaster management authority to fight against COVID-19, expenditure on COVID-19 related activities like sanitation and any ex-gratia payment made to temporary/part-time workers which is over and above their daily wages. However, the ministry was particular to clarify that daily wages to workers are part of the contractual obligation of employers which cannot be side-lined and thus cannot be considered as a CSR expenditure.

The circular also pointed out that the broad terms as per Schedule 7 of the CSR policy, which deals with the activities that constitute CSR activity, may be interpreted liberally for this purpose. This seems to be a blessing for the Government who was struggling to find funds to tackle COVID-19, while at the same time ensuring that as many hands as possible are on board to help fight against COVID-19.

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