Corporate Expenditure on COVID-19 to count as eligible CSR Expenditure

As regulators across India grapple with the impact of COVID-19, amendments and relaxations are announced constantly. On 23 March 2020, the Ministry of Corporate Affairs (“MCA”), announced that corporate expenditure on fighting COVID-19 will constitute eligible expenditure towards corporate social responsibility (CSR).

CSR is the obligation laid on companies requiring them to spend a portion of their income in giving back to the society in which they prosper. Every company having:
·            a net worth of INR 500,00,00,000 (Indian Rupees Five Hundred Crores) or more, or
·            turnover of INR 1000,00,00,000 (Indian Rupees One Thousand Crores) or more or
·            a net profit of INR 5,00,00,000 (Indian Rupees Five Crores) or more
during the 3 immediately preceding financial years from the date of reckoning, shall be required to spend at least 2% of its average net profits from the 3 preceding financial years towards CSR.

Such companies are also required to set up a CSR Committee. (It must be noted that draft amendments to the CSR Rules are in the works, although, at the time of writing, no amendments have been notified.)

Schedule VII of the Companies Act, 2013 lists out acceptable areas of CSR expenses. Among these:
·            Schedule VII (i) states that “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” are eligible CSR expenses. (emphasis supplied); and
·            Schedule VII (xii) notes that “disaster management, including relief, rehabilitation and reconstruction activities” is a valid CSR expense under the Act.

Further, the MCA, through its General Circular No. 21/2014 dated 18 June 2014, has categorically stated:
The statutory provision and provisions of CSR Rules, 2014, is to ensure that while activities undertaken in pursuance of the CSR policy must be relatable to Schedule VII of the Companies Act 2013, the entries in the said Schedule VII must be interpreted liberally so as to capture the essence of the subjects enumerated in the said Schedule. The items enlisted in the amended Schedule VII of the Act, are broad-based and are intended to cover a wide range of activities… It is further clarified that CSR activities should be undertaken by the companies in project/ programme mode as referred in Rule 4 (1) of Companies CSR Rules, 2014. One-off events such as marathons/ awards/ charitable contribution/ advertisement/ sponsorship of TV programmes etc. would not be qualified as part of CSR expenditure.

The MCA clarification dated 23 March 2020, further incentivises corporate expenditure to combat COVID-19.

This is a good step to help prod business communities into contributing generously and to enable the society to avail of additional sources of corporate funds to finance the battle against the pandemic. With paucity in testing kits and their high cost (approx. Indian Rupees 4,500 for a bundle of two tests); the difficulties in screening and testing patients; scarcity of beds, ventilators and other life-saving equipment; the economic burden of both the pandemic and its containment measures (such as lock-downs; need for financial stimulus; reimbursements required for loss of day wage earners etc.) this is a welcome move by the government. 


Schedule VII(viii) of the Companies Act, 2013 considers contributions to Central Government funds for socio-economic development and relief as a valid CSR expense. On 28 March 2020, the MCA issued an Office Memorandum notifying that contributions to the Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund, or PM CARES Fund, which was established to handle the COVID-19 crisis, shall constitute valid CSR expenditure. 

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