Companies need to spend a certain amount of money every year towards Corporate Social Responsibility (CSR). As per the Companies Act, 2013, CSR needs to be observed by the companies having a net worth of more than rupees five hundred crores or turnover more than rupees one thousand crores or net profit more than rupees five crores during the previous financial year. The companies have to spend two per cent of the average net profits made during the last three financial years on CSR. Every company needs to form a committee towards CSR policy.
The Companies Act 2013 gave immense importance to CSR policy. The companies need to allocate an amount towards CSR policy and declare the details of this policy on their website. The board of directors have to follow and implement this policy strictly.
Schedule VII of the Companies Act, 2013 (stated as Schedule VII in this article) lays down the activities of CSR towards which the companies can spend money. Companies need to spend money only on the activities listed in Schedule VII for complying with this policy. Schedule VII lists ten activities out of which companies can choose any one or more activity to spend their money allocated for CSR.
The Government keeps reviewing and amending the activities listed in Schedule VII to include current events which need help and funds for development. Recently, the Ministry of Corporate Affairs (MCA) inserted the PM Cares Fund in Schedule VII in the wake of COVID-19 to provide funds for managing the pandemic. On Monday, MCA amended the Schedule VII again to include incubators and Research and Development (R & D) projects.
The amendment to Schedule VII covers the R & D projects in the field of science, technology and medicine funded by the Central Government or the State Government or Public Sector Undertaking including any agency of the Central Government or the State Government.
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It further covers public-funded universities, national laboratories, IITs, Council of Scientific and Industrial Research (CSIR), Indian Council of Medical Research (ICMR) and various other central ministries and departments that conduct research. It also included the Department of Pharmaceuticals and Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH) in the list of institutions for funding money under the CSR policy.
MCA issued two notifications, one to amend Schedule VII and another to amend the Companies (Corporate Social Responsibility Policy) Rules, 2014 (Rules). While MCA included R & D projects funded by the Central and State Government and institutions engaged in research in Schedule VII, in the Rules it mainly provided for COVID-19.
The Rules state that a company in its regular course of business involved in R & D activity of new vaccine, drugs and medical devices can undertake R & D activity of vaccine, drugs and medical devices related to COVID-19 for financial years 2020 to 2023. But these companies engaged in R & D concerning COVID-19 should do so in collaboration with the institutions mentioned in Schedule VII. The government will treat the amount spent on R & D activities taken up by these companies mentioned in the Rules as CSR.
These amendments by the government will give a boost to the companies involved in R & D activity in India to research and develop a vaccine for COVID-19. These amendments are a boon to the companies as they no longer have to spend money outside the business of the company for CSR. Now, they can allocate CSR money to their regular work of R & D activities relating to COVID-19. Pharma companies will be encouraged to develop vaccines and drugs concerning COVID-19.
The move by the government enhances the flow of funds towards incubators and R & D projects funded by the Central and the State Government. It promotes companies involved in R & D to take up development of vaccines for COVID-19. Finding vaccine and drugs for COVID-19 is the need of the hour. These two amendments are a welcome move by the government for helping and speeding up the process in finding a solution to stop the pandemic.
For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@cleartax.in
I am an Advocate by profession. I interpret laws and put them in simple words. I love to explore and try new things in life.
