Responding to several requests and representations from various stakeholders seeking clarifications on the eligibility of CSR expenditure related to COVID-19 activities, the Ministry of Corporate Affairs has issued a clarification on Covid-19 donations that qualify as CSR expenditure and those that are non-admissible.
Why choose the PM CARES fund over the State and CM Relief funds?
Corporates are advised to contribute to 'PM CARES' fund over the state relief and CM relief funds because donations made to PM CARES fund 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 March 28, 2020.
However, donations and contributions made towards the 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 an admissible CSR expenditure.
Also, contributions made to State Disaster Management Authority to combat COVID-19 will qualify as a CSR expenditure under item no (xii) of Schedule VII of 2013, and clarified vide general circular No. 10/2020 dated 23rd March, 2020. The spending of CSR funds for Covid-19 related activities qualifies as a CSR expenditure. These include the purchase of items such as PPEs, medical equipment and supplies, promotion of health care including preventive health care and sanitation, and disaster management.
Do payment of salary or wages to employees during lockdown qualify as CSR expenditure?
Does payment of salary or wages to employees and workers, including contract labour, during the lockdown period can be adjusted against the CSR expenditure of the companies?
The MCA clarified stating, "Payment of salary or wages in normal circumstances is a contractual and statutory obligation of the company."
"Similarly, payment of salary or 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 imposition of other social distancing requirements) shall not qualify as admissible CSR expenditure," it further added.
Also, 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.
However, if any ex-gratia payment is made to the temporary, casual or daily wage workers over and above the disbursement of wages, specifically for the purpose of fighting COVID 19, then same shall qualify as a CSR expenditure, with a one-time exception, provided there is an explicit declaration to that effect by the Board of the company, and it is duly certified by the statutory auditor of the company.