Regulatory clarity with regard to several issues like the scope of activities that come under the corporate social responsibility (CSR) rules, tax liabilities and the applicability of CSR to the offices of foreign companies in India, still need to be addressed with the new CSR rules and schedules coming into effect from April 1, 2014.
In a paper expressing its views on the new CSR rules, the legal and tax counselling firm Nishith Desai Associates said that whilst being inclusive in its definition of CSR, the Union ministry of company affairs (MCA) acknowledges the urgent need of the industry to be given more freedom in choosing their CSR activities.
“But it would be interesting to see whether such autonomy will allow flexibility to companies in choosing activities from outside the list of schedule mentioned in the companies law,” says Rahul Rishi, Ankita Srivastava and Milind Antani, the authors of the paper.
There is also no clarity on the tax treatment on CSR activities. For instance, says Mr Rishi, by including the Prime Minister’s National Relief Fund into the schedule, policy-makers have allowed companies to merely write cheques and claim deductions, instead of carrying out the CSR activities on the ground.
Therefore, the new CSR provisions have to be aligned with the existing income-tax laws. Or for instance, if a company wants to invest in education in a rural area and has to build infrastructure, whether this infrastructure spend will be eligible for tax reduction is not clear, he said.
Another regulatory issue is whether CSR rules are positioned to allow convergence with the foreign contribution regime in India. For example, any foreign contribution received from any foreign source requires approval under the Foreign Contribution Regulation Act, 2010.
Since foreign companies operating in India now come under the ambit of CSR, the issue is whether their CSR spend will come within the purview of FCRA and whether spending or contribution can be made without the express approval or permission by the Union ministry of home affairs.
