A parliamentary committee has recommended allowing companies to make CSR contributions in kind, such as through products, rather than just cash. The panel also suggests raising the mandatory CSR profit threshold to ₹10 crore, a move that could reduce compliance requirements for many smaller firms. These changes aim to leverage company resources while maintaining transparency through strict new valuation rules.
A parliamentary committee has proposed significant changes to India's Corporate Social Responsibility (CSR) framework, aiming to provide companies with more flexibility in how they fulfill their social obligations. The panel has formally recommended that the government explore allowing in-kind contributions, such as donating products or services, to be counted as eligible CSR expenditure. If adopted, this would mark a major shift from the current system, which primarily focuses on financial contributions.
Potential Relief for Smaller Companies
Beyond in-kind contributions, the committee has backed a proposal to increase the profit-based threshold for CSR applicability to ₹10 crore. Under existing rules, companies must spend 2% of their average net profits from the previous three years on CSR if they meet any one of three criteria: a net worth of ₹500 crore or more, a turnover of ₹1,000 crore or more, or a net profit of ₹5 crore or more. By raising the profit threshold to ₹10 crore, the government could effectively exempt a segment of Micro, Small, and Medium Enterprises (MSMEs) from mandatory spending, potentially lowering their compliance costs.
Building a Framework for In-Kind Donations
While the committee views in-kind contributions as a way for companies to better utilize their core business expertise for social good, it acknowledged that such a system requires careful oversight to prevent misuse. The panel suggested that any move to allow non-cash donations must be supported by a robust statutory framework. This would need to include objective valuation norms to prevent over-reporting the value of goods supplied. The committee pointed to existing Goods and Services Tax (GST) valuation principles as a potential model for determining the fair value of these contributions.
Ensuring Accountability and Transparency
To maintain the integrity of CSR spending, the committee emphasized the need for independent verification, detailed disclosure requirements, and effective monitoring. A key recommendation includes the creation of a negative list of implementing agencies. Under this proposal, CSR funds or products directed toward entities on the negative list would not be considered eligible expenditure. The panel advised that inclusion in this list must be based on objective criteria or orders from competent authorities, with a clear process for removing entities once the underlying issues are resolved.
The next step for these proposals involves the government reviewing the feasibility of the regulatory framework. If accepted, these changes would require formal amendments to corporate laws. Investors should monitor future government notifications or draft rules for updates on whether these recommendations are implemented, as they could impact the way many firms manage their CSR budgets and compliance obligations.