The new law regulating companies (Companies Act) in India has been enacted and the Corporate Social Responsibility (CSR) rules have been notified, which shall be effective as of 1 April 2014.
The impact of the changes in the Indian law on multinational companies doing business in India includes several important factors which shall be outlined – in summary – below.
New Companies Act
The new law regulating companies in India (New Companies Act, 2013) has been enacted recently. This new act replaces the existing old regulations governing corporates. The new act contains inter alia provisions to the following topics:
- Related party transactions
- Inter corporate loans investments
- Governance and monitoring
- Financial reporting
- Auditor appointment, rotation and reporting
- Corporate Social Responsibility (CSR)
The chances will bring the India Companies Act to a modern level. The most important changes can be found in the enclosed Companies Act 2013 flyer.
Corporate Social Responsibility duties
As a part of the New Companies Act 2013 in India, new regulations have been notified for CSR which shall be effective as of 1 April 2014.
With enacting of the new CSR rules every company, including foreign companies, is mandatorily required to spend every financial year two percent of average net profits of last three financial years on specified CSR activities if it fulfills (at least one of) the following financial strength criteria during any financial year:
- Net worth > INR 500 crores (i.e. some USD 82 million), or
- Turnover > INR 1000 crores (i.e. some USD 164 million), or
- Net profit > INR 5 crores (i.e. some USD 820,000).
The CSR duty is not limited to only paying a certain amount of money but it has implications such as:
- Constitution and disclosure of a CSR Committee
- Preparation of a CSR policy and report
- Set-up of new governance processes, etc.
The application is to every company, including foreign companies, having its branch or project office in India.
It is expected that the CSR expenditure cannot be allowed as a business deduction for direct tax purposes as it is an application of income according to the proposed direct taxes code (DTC) 2013.
Further information on the New Companies Act 2013