24 May 2021
MCA issued a clarification on offsetting CSR spent for FY 2019-20

Keeping in view the spread of COVID-19 in India, an appeal was made on 30 March 2020 to Managing Directors/CEOs of top 1000 companies in terms of market capitalization to generously contribute to Prime Minister's Citizen Assistance and Relief in Emergency Situations Fund" (PM CARES Fund).

In the appeal, it was mentioned that such contribution might inter-alia, include the unspent CSR amount, if any, and an amount over and above the minimum prescribed CSR amount for FY 2019-20, which can later be offset against the CSR obligation arising in subsequent financial years. The said appeal was uploaded on the Ministry's website and sent to e-mails of the aforementioned corporates on 30 March 2020.

In pursuance of the said appeal, certain companies claimed to have contributed CSR funds to the 'PM CARES Fund' over and above their prescribed CSR amount for FY 2019-20.

Request for Clarification by Corporates
Several representations were received by MCA (Ministry of Corporate Affairs) for setting off the excess CSR amount spent by the companies in FY 2019-20 by way of contribution to 'PM CARES Fund' against the mandatory CSR obligation for FY 2020-21.

Clarification by MCA
In the backdrop of the above scenario, MCA issued a clarification on 20 May, which prescribes as under:

Where a company has contributed any amount to 'PM CARES Fund' on 31 March 2020, which is over and above the minimum amount as prescribed under section 135(5) of the Companies Act, 2013 ("Act") for FY 2019-20, and such excess amount or part thereof is offset against the requirement to spend under section 135(5) for FY 2020-21 in terms of the aforementioned appeal. The above is subject to all the following conditions:

  • The amount offset as such shall have factored the unspent CSR amount for previous financial years, if any.
  • The Chief Financial Officer shall certify that the contribution to "PMCARES Fund" was indeed made on 31 March 2020 in pursuance of the appeal and the same shall also be so certified by the statutory auditor of the company.
  • The details of such contribution shall be disclosed separately in the Annual Report on CSR as well as in the Board's Report for FY 2020-21 in terms of section 134 (3) (o) of the Act

Link to the clarification: http://www.mca.gov.in/Ministry/pdf/Circular_20052021.pdf
Our Comments
Combating COVID-19 is the top-most priority for the government at this given time. Corporates have rallied to the government's call by contributing to COVID-19 related causes and have emerged as a pillar of support in these trying times. The government has upheld its promise of allowing to offset contributions in excess of the CSR liability as determined under Section 135 of the Act subject to contributing corporates adhering to prescribed disclosure requirements. Government honoring its promise is certainly acknowledged by corporates who have a large role in the country's recovery. Also, CFO certification and due disclosures shall enable that transparency in reporting and contributions to be maintained even in these difficult times.
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