Corporates providing funds to political parties cannot classify such expenses as 'Corporate Social Responsibility' spending, as per the new norms notified by the government today under new Companies Act.
The notification, which comes at a time when general elections are due in the country and a debate is underway on corporate funding of political activities, clarifies that any contribution made "directly or indirectly" to any political party would not be considered as an CSR activity.
The new CSR rules, which would come into effect from April 1, 2014, mandate a large number of companies to spend at least 2 per cent of their three-year average annual net profit on social welfare activities.
Funding to political parties, however, have been excluded from the permitted list of such activities.
The government last year provided a new structure for political funding by corporates, under which companies can set up 'Electoral Trusts' for giving funds to registered political parties of the country.
As the country moves close to general elections, notification for which is expected as early as next week, there is a raging debate on corporate funding of political parties. Besides, there have been allegations, including by the Aam Aadmi Party, that certain political parties are getting huge funds from some large business houses.
The new 'Electoral Trust' structure also provides for some tax benefits to these entities for funds provided to political parties. About a dozen entities including those linked to large business houses such as Ambanis, Tatas, Mittals, Birlas and Vedanta have already set up such trusts.