Donation to PM CARES fund to be accounted as a corporate’s CSR

Introduction

Donations and contributions to the Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM-CARES) will be counted towards a company's mandatory Corporate Social Responsibility (CSR) under the Companies Act, 2013 (“Act”) according to a notification issued by the Ministry of Corporate Affairs (MCA). This was notified on May 26, 2020 (“Notification”)

Existing laws

CSR is mandatory for companies with net worth with five hundred crore rupees (Rs. 500 crores) and more, or companies with a turnover of more than one thousand crore rupees (Rs. 1,000 crores) or greater, or companies with a net profit of five crore rupees (Rs. 5 crores) or more. Generally, as per the Act, companies can fulfill their CSR responsibility through – (i) waste and pollution reduction processes; (ii) by contributing educational and social programs; (iii) by being environmentally friendly; and (iv) by undertaking activities of similar nature.

Stipulation prior to the Notification

Prior to the Notification, as per Schedule VII of the Act, companies can utilise the funds set aside for CSR in broad categories of programmes stipulated by the government to ensure their accountability like eradicating extreme hunger and poverty, promotion of education etc. 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 were also considered for CSR.

Amendment pursuant to the Notification

Through the new Notification, the Government has added PM-CARES fund as an eligible beneficiary of CSR funds. Section 135 of Act and Schedule VII of Companies (Corporate Social Responsibility) Rules, 2014 (“Rules”) prescribe mandatory provisions for companies to fulfill their CSR responsibility. With this Notification, Schedule VII of the Rules now specifically mentions contributions to the PM-CARES Fund as a separate category towards a company's CSR obligations. Hence, Sub-section (1) of section 467 of the Act has been amended to make PM-CARES fund eligible to receive CSR funding from corporates.

Incentives

Apart from CSR funding, donations to the PM CARES fund will qualify for benefits and exemptions under Section 80G of the Income Tax Act, 1961 and the Foreign Contribution (Regulation) Act, 2010.

This update is by Rohitaashv Sinha, Advocate & Associate Partner at Agarwal Jetley & Co., Advocates & Solicitors. Contact: Email: rohitaashv.sinha@agarwaljetley.com or Mob: (+91) - 9999565393