Government Allows Investment in Zero Coupon Zero Principal Instruments
New Delhi, In a significant policy shift, the government has amended the Companies Act, 2013, enabling companies to allocate up to 10% of their Corporate Social Responsibility (CSR) funds to zero coupon zero principal instruments issued by not-for-profit organizations via a Social Stock Exchange (SSE).
Key Highlights
- CSR Mandate: Companies falling under a specified class must spend at least 2% of their three-year average annual net profit on CSR activities.
- Schedule VII Amendment: The corporate affairs ministry has added 'subscription to zero coupon zero principal instruments on Social Stock Exchange' as an eligible activity under Schedule VII of the Companies Act.
- Transparency and Regulation: The amendment aims to simplify compliance for companies and aid Not for Profit Organizations (NPOs) in raising funds for public welfare projects in a regulated manner.
- SEBI Regulations: Issuance of these instruments by NPOs will adhere to the Securities and Exchange Board of India's (SEBI) regulations.
- Expenditure Cap: CSR-mandated companies can allocate up to 10% of their total CSR expenditure to these instruments in any financial year.
- CSR Policy Rules, 2014: Amendments have introduced definitions for NPOs and zero coupon zero principal instruments to facilitate implementation.
Expert Insights
Anshul Jain, Partner Regulatory at PwC India, highlighted that this move allows companies to channel CSR funds into these instruments via an SSE. This development promotes a transparent and credible funding method for CSR projects and broadens the capital access for social enterprises.
