Summary: Companies in India must adhere to CSR mandates if they meet specific financial thresholds: a net worth of ₹500 crore, turnover of ₹1,000 crore, or net profit of ₹5 crore in the preceding financial year. This applies to holding, subsidiary, and foreign companies with a presence in India. Companies spending over ₹50 lakh on CSR annually need to form a CSR Committee with a minimum of three directors, including at least one independent director. This committee is responsible for drafting the CSR Policy and an annual action plan, which the Board must approve. The Board’s duties include ensuring at least 2% of the average net profits from the past three years are spent on CSR, disclosing details in the annual report, and verifying proper fund utilization through approved channels like Section 8 companies or registered trusts with a track record. CSR funds must be spent by the end of the next financial year, with any unspent amounts transferred to a designated fund. Non-compliance can lead to penalties for both the company and its officers. Permissible CSR activities cover a broad range, including poverty eradication, education, environmental sustainability, and disaster relief, as outlined in Schedule VII of the Companies Act.
1. SCOPE OF CSR APPLICABILITY: A Company is required to comply with CSR provisions if, in the immediately preceding financial year, it meets any one of the following thresholds:
Net Worth ≥ ₹500 crore
Turnover ≥ ₹1,000 crore
Net Profit ≥ ₹5 crore
These requirements extend to holding, subsidiary, and foreign companies defined under Section 2(42) with branch or project offices in India, once they meet the criteria. If a Company fails to meet any one threshold for three consecutive financial years, it is exempt until it again qualifies.
2. FORMATION OF CSR COMMITTEE
Pursuant to the Companies (Amendment) Act, 2020, any Company that allocates more than ₹50 lakh to CSR must establish a CSR Committee. Structure requirements:
Minimum three directors, with at least one independent director
Private Companies with only two directors may constitute the Committee with both
Foreign Companies must nominate two individuals:
1. A resident in India authorised to accept legal notices/documents
2. A nominee of the foreign Company
In cases where appointment of an independent director is not mandated by Section 149(4), the Committee may omit one.
Responsibilities:
Draft and continuously review the CSR Policy
Formulate the Annual CSR Action Plan (post 22.01.2021 amendment) detailing:
List of CSR projects/ programmes
Geographic and thematic focus
Execution modalities
Fund utilisation and implementation timetable
Monitoring and reporting framework
Criteria and methodology for need and impact assessment
Such Action Plan must be recommended to the Board, and may be amended during the financial year with the Committee’s endorsement.
3. BOARD’S STATUTORY DUTIES
The Board is mandated to:
1. Approve the CSR Policy
2. Ensure CSR expenditure of at least 2% of average net profits over the preceding three years
3. Include detailed CSR disclosures in the annual Board Report
4. Confirm CSR programs are implemented directly, or through eligible registered entities, and ensure Form CSR 1 is filed with ROC
5. Continuously monitor and, if necessary, modify ongoing CSR initiatives
6. Certify (via CFO or financial officer) that disbursed funds are used properly and as approved by the Board
4. AUTHORIZED CHANNELS FOR CSR IMPLEMENTATION
CSR projects may be undertaken:
By a Section 8 company, or a public trust/society registered under Sections 12A and 80G of the Income Tax Act, founded by the Company (solo or joint)
By similar Section 8 companies or trusts/societies established by Central/State Governments
By entities created under Central or State legislation
By eligible entities with ≥3 years’ track record in implementing CSR-related programs
Additionally, Companies may:
Engage international organisations for project design, evaluation, and training
Collaborate with other Companies, while ensuring separate CSR reporting
The Board must certify proper fund utilization and, for ongoing projects, ensure timely delivery and approve adjustments to the implementation plan.
5. FINANCIAL & TEMPORAL OBLIGATIONS
CSR spend must be a minimum of 2% of average net profits (last three years) annually
Administrative overhead capped at 5% of CSR funds
Surplus arising from CSR must be either:
Reinvested in the same project
Transferred to an Unspent CSR Account
Credited to a Schedule VII fund within six months of financial year-end
Excess CSR contributions may be carried forward and set off against future obligations for up to three years
Time-bound Investment:
CSR funds for Year T must be expended by the end of Year T+1; any unspent amount must be transferred to a Schedule VII fund (e.g., PM CARES) within six months after Year T+1 closure (e.g., for FY 2023 24, transfer by 30 September 2025).
6. CSR POLICY FRAMEWORK & DISCLOSURE
Policy Components:
Strategic direction from the Board, on the CSR Committee’s recommendation
Principles guiding selection, execution, monitoring, and annual planning
Alignment with Schedule VII CSR activities
Review & Approval:
The CSR Committee drafts and recommends it; the Board approves and ensures periodic updates.
Disclosure Obligations:
Upload CSR Policy, Committee composition, and approved projects on the corporate website
Publish the CSR Policy and spending status in the Board Report
Disclose any reasons for non spending
Reporting Annexure (ANNEXURE II):
Annexure II must include:
1. CSR Policy summary
2. CSR Committee composition
3. Web link to policy, committee, and project disclosures
4. Impact assessment details (if applicable), with associated costs
5. Set-off details and CSR spending (ongoing and other projects)
6. Details on CSR-funded capital assets
7. Explanation of any under utilisation of funds
7. PROCEDURE FOR ESTABLISHING CSR FRAMEWORK
Before Constituting CSR Committee:
1. Ascertain eligibility (Net Worth, Turnover, Net Profit thresholds)
2. Issue notice for Board Meeting
3. Convene Board Meeting to form the CSR Committee
After Establishment:
1. Issue notice for CSR Committee meeting to draft CSR Policy
2. Hold CSR Committee meeting for Policy recommendation
3. Issue notice and hold Board Meeting for CSR Policy approval
4. Issue notice for CSR Committee meeting to recommend fund allocation
5. Convene CSR Committee meeting for fund planning
6. Issue notice and hold Board Meeting for fund allocation approval
7. Disclose Policy in Board Report and, if inaction, provide reasons
8. NON-COMPLIANCE AND PENALTIES
Failure to comply with Sections 135(5) or 135(6) attracts:
Company penalty: Twice the unspent amount or ₹1 crore, whichever is lower
Officer penalty: One-tenth of unspent amount or ₹2 lakh, whichever is lower
Additionally, the Central Government may issue binding directions to ensure compliance. For Companies with total CSR obligation ≤ ₹50 lakh, forming a CSR Committee is optional, and responsibilities rest directly with the Board.
9. SCHEDULE VII: PERMISSIBLE CSR INITIATIVES
CSR policy may include, but is not limited to:
1. Combatting hunger, poverty, malnutrition; improving preventive healthcare, sanitation, and safe water access
2. Enhancing education, including special education and skill-building for marginalized groups
3. Promoting gender equality; welfare of women, orphans, senior citizens, and disadvantaged groups
4. Environmental conservation, ecological balance, biodiversity protection, and river rejuvenation (e.g., Clean Ganga)
5. Cultural preservation, support for art and heritage, public libraries
6. Welfare measures for armed forces and paramilitary veterans and dependents
7. Promotion of rural, national, Olympic, and Paralympic sports
8. Contributions to relief funds (e.g., PMNRF, PM CARES) for socio economic upliftment of vulnerable communities
9. Support for R&D, incubation, and higher education institutes under government purview
10. Rural development initiatives
11. Slum rehabilitation, as legally defined
12. Disaster prevention, relief, and rebuilding efforts
Author Bio
