Under a notification issued by the MCA, companies will now be permitted to channel up to 10 per cent of their annual CSR expenditure through ZCZP instruments. The rules further clarify that companies subscribing to such instruments will not be allowed to undertake impact assessments of projects financed through them.
Instrument Rules
A ZCZP instrument carries neither interest payments nor repayment of principal, effectively making it a philanthropic funding mechanism routed through a market framework.
Under Section 135 of the Companies Act, firms with a net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of at least ₹5 crore in the immediately preceding financial year are required to spend a minimum of 2 per cent of the average net profits of the preceding three financial years on CSR activities. Failure to comply can attract penalties of up to ₹1 crore.
The notification defines ZCZP instruments as securities issued by not-for-profit organisations (NPOs) registered on the SSE segment of a recognised stock exchange. Such organisations will be permitted to undertake projects with a duration of not more than three succeeding financial years from the date of issuance. In the event of delisting or termination of the instrument, any unspent amount will have to be transferred to funds specified under the approved list of CSR activities.
