Modi govt unlikely to classify donations to CM fund as CSR despite demand from states

Modi govt feels states should have no problem in mobilising CSR funding since donations to states’ disaster management authorities for Covid-19 qualify as CSR.

File photo of Prime Minister Narendra Modi | ANI

New Delhi: The Narendra Modi government is unlikely to include contributions made to the ‘Chief Minister’s Relief Fund’ or ‘State Relief Fund’ to combat Covid-19 as corporate social responsibility (CSR) expenditure. Non-BJP-ruled states such as Kerala, Punjab, West Bengal, Rajasthan and Maharashtra wanted donations to the CM relief fund to be classified as CSR spending. 

The government is, however, of the view that since contributions to the states’ disaster management authorities to combat Covid-19 qualify as CSR expenditure, the states should have no problem in mobilising CSR funding to fight the pandemic.

“The CM relief fund is not an eligible fund to receive CSR since inception and there is no proposal as of now to do so,” said a senior government official, who did not want to be named. 

The Ministry of Corporate Affairs had issued a FAQ (frequently asked questions) earlier this month where it clarified what qualifies as CSR expenditure. 

It said contributions to the PM CARES Fund — created to collect public donations for Covid-19 — can be claimed as CSR expenditure, but contributions made to CM relief fund and state relief fund to combat Covid-19 are not eligible for deductions under CSR. 

However, contributions to the states’ disaster management authorities were eligible for the deductions.

The government had constituted the PM CARES fund last month and relaxed norms to enable companies to claim 100 per cent tax deductions on contributions made to the fund on par with the tax treatment to the PM’s National Relief fund.

Many big corporate houses, state-owned firms and individuals have announced substantial contributions to the fund set up by the Modi government on 28 March to raise funds for Covid-19.

Donations to the fund crossed over Rs 6,500 crore within a week of its formation.

Appeal from states

At a press conference last week, Kerala Chief Minister Pinarayi Vijayan sought changes to the Companies Act to classify donations to the CM relief fund as CSR spending.

“In a federal set-up, the relief funds set up by the states for a public purpose cannot be excluded from the eligibility criteria when the same is available for a central fund set up with similar objectives and aims,” he said. “In a letter to the Prime Minister, I have requested his intervention to correct this inequality, which is against the principles of underlying cooperative federalism and adds to the fiscal stress of the states.”

Rajasthan, Punjab, West Bengal and Maharashtra too have had a similar demand. 

Earlier this month, Punjab Chief Minister Captain Amarinder Singh had also written to the PM, asking for CM relief fund to be classified as CSR expenditure in “national interest”.

Rajasthan Chief Minister Ashok Gehlot made a similar request.

Writing to Finance Minister Nirmala Sitharaman, West Bengal Finance Minister Amit Mitra had said not including the contributions to the state fund under CSR would jeopardise the state’s efforts to raise funds to fight the pandemic. 

Routes for CSR classification

At present, companies with a net profit of Rs 5 crore or a net worth of Rs 500 crore or a turnover of Rs 1,000 crore have to spend 2 per cent of their average net profits of the last three years on CSR.

The government official quoted above explained that under Schedule VII of the Companies Act, there are two routes for an expenditure to be classified as CSR.

“One is the ‘fund’ route where the contribution per se is treated as CSR expenditure and the end utilisation is not tracked. The other is the ‘activities’ route where permissible activities are enumerated,” he said, adding the two routes cannot be read together. 

“One cannot conclude that a company can contribute to any fund regardless of whether or not it is included in Schedule VII so long as the end use pertains to admissible activities,” the official added.