MCA issues COVID-19 related FAQs on CSR

MCA COVID-19 - violation CSR Provisions - MCA - Taxscan

The Ministry of Corporate Affairs (MCA), on Friday, issued circular addressing Frequently Asked Questions (FAQs) on Corporate Social Responsibility (CSR) related to COVID-19.

Like all other public agencies, MCA has been taking a series of steps in the wake of the rapidly spreading COVID-19 and issued a clarification on the spending of CSR funds for COVID-19 stating that the amount spent on COVID-19 by companies will count towards CSR spending. In this regard, the ministry received several references on representation from various stakeholders seeking clarification on the eligibility of CSR expenditure related to COVID-19.

The Frequently Asked Questions (FAQs) issued by the Ministry of Corporate Affairs (MCA) said that the contribution made to ‘PM CARES Fund’ shall qualify as CSR expenditure under item no (viii) of Schedule VII of the Companies Act, 2013 and it has been further clarified vide Office memorandum F. No. CSR-05/1/2020-CSR-MCA dated 28th March, 2020.

‘Chief Minister’s Relief Fund’ or ‘State Relief Fund for COVID-19’ is not included in Schedule VII of the Companies Act, 2013 and therefore any contribution to such funds shall not qualify as admissible CSR expenditure.

The contribution made to State Disaster Management Authority to combat COVID-19 shall qualify as CSR expenditure under item no (xii) of Schedule VII of the 2013 and clarified vide general circular No. 10/2020 dated 23rd March, 2020.

Ministry vides general circular No. 10/2020 dated 23rd March, 2020 has clarified that spending CSR funds for COVID-19 related activities shall qualify as CSR expenditure. It is further clarified that funds may be spent on various activities related to COVID-19 under items nos. (i) and (xii) of Schedule VII relating 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.

Payment of salary/ wages in normal circumstances is a contractual and statutory obligation of the company. Similarly, payment of salary/ wages to employees and workers even during the lockdown period is a moral obligation of the employers, as they have no alternative source of employment or livelihood during this period. Thus, payment of salary/ wages to employees and workers during the lockdown period (including an imposition of other social distancing requirements) shall not qualify as admissible CSR expenditure.

Payment of wages to temporary or casual or daily wage workers during the lockdown period is part of the moral/ humanitarian/ contractual obligations of the company and is applicable to all companies irrespective of whether they have any legal obligation for CSR contribution under section 135 of the Companies Act 2013. Hence, payment of wages to temporary or casual or daily wage workers during the lockdown period shall not count towards CSR expenditure.

If any ex-gratia payment is made to temporary/casual workers/ daily wage workers over and above the disbursement of wages, specifically for the purpose of fighting COVID 19, the same shall be admissible towards CSR expenditure as a one- time exception provided there is an explicit declaration to that effect by the Board of the company, which is duly certified by the statutory auditor.

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