Various efforts are being made by the central and state governments to control the spread of COVID-19, commonly known as coronavirus. The task is tough and demands various measures to be taken simultaneously on war footing to control the virus from spreading and graduating from phase one to phase four. Phase four is considered to be the most dangerous and can lead to fatalities beyond one’s imagination.
The decisions taken by the Central/State governments during past few days with respect to the imposition of curfew, lockdown, financial packages for the poor, putting law enforcing agencies and health care system on 24X7 working mode, procurement of health care equipment for Hospitals, etc. cannot be successful without allocation of adequate funds.
To achieve the financial needs The Central Government and the state Governments ear-marked funds under their budgets to be used for the above objective. Few individuals have also donated funds to the government kitty to be used for the control of this epidemic. The Prime Minister of India has also appealed to the General Public with a request to contribute generously to the PM CARES COVID FUND.
Taking it forward the Ministry of Corporate Affairs, Government of India vide it’s General Circular No. 10/2020 No. 05/01/2019-CSR dated 23rd March 2020 has provided certain clarification on the spending of CSR funds for COVID-19. This circular says that under the present circumstances when the World Health Organization (WHO), has declared Corona Virus (COVID-19) as a pandemic, the Government of India has taken a decision to treat this pandemic as a notified disaster. By declaring so any expenditure made on account of COVID-19 will be treated as an eligible expense under CSR activities.
What is CSR and from where funds are made available for CSR activities:
Briefly explaining the concept of corporate social responsibility, every eligible corporate house is required to spend a specified percentage of its net profit calculated as per section 198 of the Companies Act 2013 on the CSR activities as defined under Schedule VII of the said act. This being a mandatory expenditure is to be made by the corporate sector in India to compensate for the loss which has been caused to the natural resources in any form due to the setting of their business houses, factories, etc. The doctrine of giving back something to the society which has given you so much applies here.
The funds are being made available as eligible corporate houses are required to set aside a fund equivalent to a specific percentage of net profit as provided under section 135 of the companies Act.
Eligible Expenditure Heads where this CSR funds can be utilized: under Section 135 Schedule VII are:
“Activities which may be included by companies in their Corporate Social Responsibility Policies Activities relating to: —
(i) Eradicating hunger, poverty and malnutrition, [‘‘promoting health care including preventive health care’’] and sanitation [including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation] and making available safe drinking water.
(ii) promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently-abled and livelihood enhancement projects.
(iii) promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, daycare centers and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups.
(iv) ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water 4[including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga].
(v) protection of national heritage, art, and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional art and handicrafts;
(vi) measures for the benefit of armed forces veterans, war widows, and their dependents;
(vii) training to promote rural sports, nationally recognized sports, Paralympic sports and Olympic sports
(viii) contribution to the prime minister’s national relief fund or any other fund set up by the central govt. for socio-economic development and relief and welfare of the scheduled caste, tribes, other backward classes, minorities, and women;
(ix) Contribution to incubators funded by Central Government or State Government or any agency or Public Sector Undertaking of Central Government or State Government, and contributions to public-funded Universities, Indian Institute of Technology (IITs), National Laboratories and Autonomous Bodies (established under the auspices of Indian Council of Agricultural Research (ICAR), Indian Council of Medical Research (ICMR), Council of Scientific and Industrial Research (CSIR), Department of Atomic Energy (DAE), Defence Research and Development Organisation (DRDO), Department of Science and Technology (DST), Ministry of Electronics and Information Technology) engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs).
(x) rural development projects.
(xi) slum area development.
Explanation: – For the purposes of this item, the term `slum area’ shall mean any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force.
(xii) disaster management, including relief, rehabilitation and reconstruction activities.”
Any expenditure made to achieve any of the above objectives qualifies as eligible expense under the Corporate Social Responsibility as defined under section 135 of the companies Act, 2013.
The circular issued by the Government of India, as stated above, clarifies that “ Funds may be spent for various activities related to COVID-19 under item nos. (i) to (xii) of Schedule VII related to the promotion of health care, including preventive health care and sanitation, and disaster management. Further, as per General Circular No. 21/2014 dated 18.06.2014, items in Schedule VII are broad-based and may be interpreted liberally for this purpose.”
Thus, the State has given full liberty to spend money out of CSR funds on any or all the objectives as classified under item nos. (i) to (xii) of Schedule VII ( as reproduced above) with liberal interpretation so that there is no disallowance of any particular expenditure made under the CSR activities at a later stage. Corporate houses can use their unspent CSR funds for the prevention and control of the pandemic caused by COVID-19 to help the country come out of the present crisis.
The author is an income tax practitioner and can be reached at [email protected]