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Modi Government plans to penalise CSR defaulters under Companies Act, 2013

The Modi Government has drafted plans to penalise the Companies under the provisions of Section 135 (Corporate Social Responsibility) of the Companies Act, 2013 as now it will be very difficult for the companies to get away from not spending the mandatory  2% of their profits on Corporate Social Responsibility(CSR) as specified by law .

The government is planning to make the provisions more strict by introducing the penalty clause which was missing under the provision when the same was notified.

At present there is no penalty imposed on the non spending of the amount in respect of CSR and the companies can get away by giving an explanation of not complying with the same and at the most the Ministry can ask for the roles and responsibilities of the directors.

Under the Companies Act 2013, a company must spend 2% of its average net profit in the preceding three years on CSR if it has a turnover of Rs 1,000 crore or more, or net worth of Rs 500 crore or more, or net profit of Rs 5 crore or more.

Some representations and comments have been received from the stakeholders to the Ministry that a better proposition could be that the expenditure made on the CSR activities are shall be allowed as a deductible expense for computing the Income Tax Liability of the Company. The expenditure to be made on the CSR activities are laid out in Schedule VII of the Companies Act, 2013.

The Companies which fail to spend the 2% of the profits on the CSR activities can also transfer the remaining amount to the Prime Minister’s Relief Fund. The regulator expects the Companies to abide by the legislation in its true letter and spirit which does not contain any penal provisions but if the compliance provisions will turn out to be low then the regulator will be imposing heavy penalties for repeated non compliances.

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