New Delhi, Jun 22 :  Public sector companies will soon have to follow the social welfare spending norms as prescribed under the new companies law that will replace existing guidelines in this regard. At present, Corporate Social Responsibility (CSR) spending by central public sector undertakings is based on guidelines issued by the Department of Public Enterprises (DPE). Under the Companies Act, 2013, certain class of profitable entities are required to spend at least two per cent of their three-year average annual net profit towards CSR activities.

According to an official, DPE would be harmonising CSR norms for public sector enterprises with that of provisions in the new Companies Act. DPE would get it vetted by the Corporate Affairs Ministry before coming out with the amended rules, the official added. The Ministry is implementing the Companies Act. Current DPE guidelines require central PSUs to shell out 1-5 per cent of their profit after tax towards social welfare spending.

Entities having a profit after tax of less than Rs 100 crore have to set apart 3-5 per cent for “CSR and sustainability activities”. In case of entities having a profit after tax of Rs 100 crore to Rs 500 crore, the requirement is to shell out 2-3 per cent. For those having profit after tax of Rs 500 crore or more, guidelines suggest 1-2 per cent spending on CSR works. As per the new companies law, CSR rules are applicable to companies having at least Rs 5 crore net profit, or Rs 1,000 crore turnover or Rs 500 crore net worth.

In case these entities are unable to spend the required amount, reasons for the same have to be given to the Ministry. Meanwhile, the Ministry has asked stakeholders to liberally interpret the provisions in Schedule VII (Companies Act) — that relates to CSR works. “One-off events such as marathons/awards/charitable contribution/advertisement/sponsorships of TV programmes etc would not be qualified as part of CSR expenditure,” the Ministry said in a recent circular.