Leave the prison clause, grant tax credit by CSR: Panel

NEW DELHI: a high-level committee on Corporate social responsibility ( CSR ) has suggested that the provision of imprisonment be eliminated in the event of a violation of the expenditure requirement and disclosures, while seeking to allow the deduction of taxes on expenditure.

Instead of the imprisonment provided in two sections of the Companies Law, the panel headed by the secretary of corporate affairs, Injeti Srinivas, has recommended that the penalty be increased to two or three times the predetermined amount, with a cap of Rs 1 crore . The companies protested against the provision of the prison, which caused FM Nirmala Sitharaman to promise a review The proposals are not a reaction to the protests, as they were written weeks ago, although the report was finalized last week, sources told TOI.

The panel suggests third-party evaluations in pilot form

Sources said there was “selective reading” of the CSR law as the Companies Act provided for up to three-year imprisonment under Section 134(8) for non-disclosure. “Non-disclosure carried stiffer penalty than violation. The committee has suggested that in both cases, imprisonment should be done away with but a stiff penalty should be imposed,” said a source privy to the discussions.

The sources also said that despite the provision for jail, the law stipulates the aggravation of the crime, allowing companies to escape by paying a fine. “Incarceration is a provision that will be used in the most rare case and is not activated every time a company does not meet the expense requirement. The government has no perverse intention of using it, ”said a source, adding that recent amendments have given companies flexibility.

The law mandates that companies with a net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more, have to allocate 2% of their average net profits of three financial years for CSR activities.

The Srinivas committee has recommended that the scope be extended to include limited liability company firms as well as banks. To ease the burden on small companies, those with CSR amount of under Rs 50 lakh do not need to constitute a committee of the board and also allow for spending of the amount over three to five years after transferring the money into a separate account. A CSR Fund is also planned for companies to transfer unused money.

He has also suggested that the money be allocated to create assets for public purposes and that the allocation is not necessarily for activities in the local area. The panel also recommended improved disclosure and a third-party evaluation on a pilot basis.