Government Eases CSR Norms, Offering More Flexibility to Companies

The Centre has revised Corporate Social Responsibility (CSR) rules, allowing companies to use a part of their mandatory CSR spending to subscribe to social impact instruments issued through the Social Stock Exchange (SSE), as per PTI reports. 

The change has been notified by the Ministry of Corporate Affairs (MCA) through amendments to Schedule VII of the Companies Act, 2013, which lists activities that qualify as CSR expenditure. 

New Option Under CSR Spending 

As per the amendment, companies can now invest in zero coupon zero principal (ZCZP) instruments issued by eligible not-for-profit organisations (NPOs) on the Social Stock Exchange. 

However, such investments cannot exceed 10% of a company's total CSR expenditure for a particular financial year. The remaining CSR spending will continue to be deployed through other eligible activities permitted under the law. 

Support for Not-for-Profit Organisations 

The government said this is intended to help NPOs access funding for public welfare projects through a regulated platform. 

ZCZP instruments are designed specifically for social enterprises and non-profit entities. Unlike conventional debt instruments, they do not carry interest payments and do not involve repayment of the principal amount to investors. 

Eligible organisations issuing these instruments will have to comply with the framework laid down by the Securities and Exchange Board of India (SEBI) for the Social Stock Exchange. 

Changes to CSR Policy Rules 

Alongside the amendment to Schedule VII, the government has also modified the Companies (CSR Policy) Rules, 2014. 

The revised rules introduce definitions for "not-for-profit organisation" and "zero coupon zero principal instrument". These additions are for facilitating the implementation of the new provision within the existing CSR framework. 

CSR Requirement Remains the Same 

The latest notification does not change the CSR spending requirement under the Companies Act, 2013. 

Under the law, certain profitable companies are required to spend at least 2% of their average net profits from the preceding three financial years on CSR activities during a financial year. 

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Conclusion 

With the amendment now in place, companies have an additional CSR spending avenue through the Social Stock Exchange, subject to the 10% cap prescribed under the revised rules. 

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