BACKGROUND: Presently Corporate Social Responsibility (CSR) expenditure is at the discretion of the corporate however after enactment of Section 135 of Companies Act 2013 such expenditure is made mandatory for certain corporate (Criteria given below).
Corporate Social Responsibility (CSR) has been in existence for a long time and is almost as old as civilization. It is based on the Gandhian Principle of “trusteeship concept” whereby business houses are looked upon as trustees of the resources they draw from society and thus are expected to return them back manifold.
CSR is extremely important for sustainable development of all stakeholders (all the people, on whom the business has an impact, including the society at large).
Company is a social institution having duties and responsibilities towards the community in which if functions. Its objective is to bring about maximization of social welfare and common good.
India is the only country so far, where CSR has been made mandatory.
B. Applicability to which CSR provisions applicable:
A. Following below mention companies are required to constitute CSR Committee, If Company having following during any financial year (any financial year described below)
B. Provisions of CSR apply to foreign branch/project office of foreign company:-
The Provisions of CSR are applicable to Foreign Company having Branch office or project in India if it fulfill the above given criteria. The criteria of [1]Net Profit etc. apply only to business operations in India in case of foreign Company/ Project Office.
1. When companies get ceases to comply with the provisions of CSR?
Every company which ceases to be a company covered above three conditions for three consecutive financial years shall not be required to:
a) Constitute a CSR Committee; and
b) Comply with the provisions contained in sub-sections (2) to (5) of the said section (to spent amount on CSR Activities).
Once company again fall within the limit provisions of CSR will be applicable on Company.
2. What is meaning of any financial year mentioned above?
General Circular No. 21/2014, Dated: 18.06.2014
“Any Financial year” referred under Sub- Section (1) of Section 135 of the Act read with Rule 3(2) of Companies CSR Rule, 2014 implies any of the three preceding financial years.
As per ICSI FAQ’S
A company which meets the criteria in any of the preceding three financial years (i.e. 2011-12, 12-13, 13-14) but which does not meet the criteria in financial year 2014-15 will need to constitute CSR Committee and comply with provisions of 135 (2) to (5) in the year 2014-15.
C. CSR COMMITTEE
1. Constitutions of CSR Committee: Company to which CSR is mandatory should constitute a CSR Committee to undertake and monitor CSR activities:
The CSR Committee shall consist of 3 (Three) or more Director, out of which at least one director shall be an Independent Director.
i. An Unlisted Public Company: This is covered under CSR provisions, but need not to have Independent Director on the CSR Committee.
ii. Private Limited Company: which is covered under CSR provisions
a. Need not have Independent director on the CSR Committee
b. Can have CSR committee with only Two Directors.
iii. In case of Foreign Company: The CSR committee should have at least Two person, out of which
a. One person shall be specified under section [2] 380(1)(d) of the 2013 Act and
b. Another person nominated by the Foreign Company.
2. CSR Committee Meeting:
i. Law is silent w.r.t. number of CSR Committee meetings in a year. But as per Secretarial Standard 1 clause no. 2.2 “Committees shall meet as often as necessary subject to the minimum number and frequency stipulated by the Board or as prescribed by any law or authority.”
ii. CSR Committee meeting can conduct business by passing of resolution by circulation.
a. Quorum: Law is silent w.r.t. quorum for the committee meeting. But as per Secretarial Standard 1 clause no. 3.5. “The presence of all the members of any Committee constituted by the Board is necessary to form the Quorum for Meetings of such Committee unless otherwise stipulated in the Act or any other law or the Articles or by the Board.
iii. Time Limit: No time limit prescribed for constitution of CSR Committee. However keeping in view the fact once provision applicable on the Company, it should constitute the committee within 6 month.
3. Role/ Functions of CSR Committee:
i. To formulate and recommend to the board of Directors CSR Policy as per activities specified in Schedule VII.
ii. To recommend the amount of expenditure to be incurred on above activities along with calculation of the same.
iii. To monitor the policy from time to time.
iv. Prepare a transparent monitoring mechanism for ensuring implementation of the projects / programmes / activities proposed to be undertaken by the company.
D. Role/ Responsibility of Board of Directors:
1. Responsibility:
i. To approve the CSR Policy recommended by the Committee.
ii. To disclose the contents of the policy in its report & place it on website.
iii. To ensure that activities reflected in CSR policy are actually undertaken by Company.
iv. To ensure that activities included by a Company in its Corporate Social Responsibility Policy are related to the activities included in Schedule VII of the Act.
2. Role/Work:
i. After taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the Company.
ii. Review activity included in policy undertake by the Company or not.
iii. Check Whether Company is spending the amount if not discuss in the Meeting.
iv. The Board of Director’s report undertakes Section 134(3) of the 2013 Act shall disclose the composition of the Corporate Social Responsibility Committee.
E. Net Profit Require spending on CSR Activity:
To ensure that at least 2% of average net profit of 3 immediately preceding financial years to be spent on CSR activities every year. Exp. For Financial Year 2014-15 Calculation: Average net profit of FY 2011-12, 2012-13 & 2013-14 needed to be considered.
“Net profit” means the net profit of a company as per its financial statement prepared in accordance with the applicable provisions of the Act, but shall not include the following, namely:
i. any profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise; and
ii. Any dividend received from other companies in India, which are covered under and complying with provisions of Section 135 of the.
Most Imp: average net profit is calculated as per section 198 i.e. calculation done for managerial calculation. (example of calculation as per section- 198 given below)
Net Profit for Foreign Company: In case of a foreign company covered under these rules, net profit means the net profit of such company as per profit and loss account prepared in terms of clause (a) of sub-section (1) of section 381 read with section 198 of the Act.
Whether the average net profit criteria in section 135(5) is Net profit before tax or Net profit after tax?
The explanation to section 135(5) states that “average net profit” shall be calculated in accordance with section 198 of the Companies Act, 2013. In terms of section 198(5)(a) in making computation of net profits, income-tax and super-tax payable by the company under the Income-tax Act, 1961 shall not be deducted. Therefore, the net profit criterion in section 135(5) is NET PROFIT BEFORE TAX.
F. CSR ACTIVITIES INCLUDES:
Preferable Location for spent of Amount:
i. The company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities.
ii. CSR projects or programs or activities undertaken in India only shall amount to CSR Expenditure.
1. If expenditure done by Foreign Holding Company? ( Refer Circular 21/2014 dated 18 June 2014)
Expenditure incurred by Foreign Holding Company for CSR activities in India will qualify as CSR spend of the Indian subsidiary if, the CSR expenditures are routed through Indian subsidiaries and if the Indian subsidiary is required to do so as per section 135 of the Act.
2. If Registration of Trust is not mandatory in any state?
‘Registered Trust’ (as referred in Rule 4(2) of the Companies CSR Rules, 2014) would include Trusts registered under Income Tax Act 1956, for those States where registration of Trust is not mandatory.
3. Whether a Company can spent through any other Entity:
Contribution to Corpus of a Trust/ Society/ section 8 Companies etc. will qualify as CSR expenditure until unless:
(a) the Trust/ society / Section 8 company etc. is created exclusively for undertaking CSR activities and [established by the company, either singly or along with its holding or subsidiary or associate company, or along with any other company, or holding or subsidiary or associate company of such other company, or otherwise]
(b) If not if such trust, society or company is 86[not established by the company, either singly or alongwith its holding or subsidiary or associate company, or along with any other company, or holding or subsidiary or associate company of such other company] shall have an established track record of three years in undertaking similar programs or projects;
(c) the company has specified the project or programs to be undertaken through these entities, the modalities of utilization of funds on such projects and programs and the monitoring and reporting mechanism
(d) Where the corpus is created exclusively for a purpose directly relatable to a subject covered in Schedule VII of the Act.
4. Whether company can collaborate with another company for CSR activity and project?
A company may also collaborate with other companies for undertaking projects or programs or CSR activities in such a manner that the CSR committees of respective companies are in a position to report separately on such projects or programs
5. Building CSR Capacity:
Company may build CSR capacity of their own personnel as well as those of their implementing agencies through institutions with established track record of three years are permissible. However, such expenditure shall not be more than 5% of total CSR expenditure of company in one financial year.
G. ACTIVITY DOESN’T INCLUE IN CSR:
i. Activities undertaken in normal course of business.
ii. Activity undertaken outside India.
iii. CSR projects or programs or activities that benefit only the employees of the company and their families shall not be considered as CSR activities.
iv. Contribution of any amount directly or indirectly to any political party under section 182 of the Act, shall not be considered as CSR activity.
v. Activity not covered within schedule VII of the 2013 Act.
vi. One-off events such as marathons/ awards/ charitable contribution/ advertisement/ sponsorships of TV programmes etc. would not be qualified as part of CSR expenditure.
vii. Expenses incurred by companies for the fulfillment of any Act/ Statute of regulations (such as Labour Laws, Land Acquisition Act etc.) would not count as CSR expenditure under the Companies Act
H. CSR POLICY & EXPENDITURE
‘CSR Policy” relates to the activities to be undertaken by the company as specified in Schedule VII to the Act and the expenditure thereon, excluding activities undertaken in pursuance of normal course of business of a company. The CSR Policy of the company shall, inter-alia, include the following, namely: – As per Rule4, following points must be considered while drafting the CSR Policy:
i. CSR policy shall specifically provide activities which are to be undertaken by the Company during the financial year;
ii. CSR policy may provide for the activities which are for the benefit of the employees of the company. However, such expenditure on such activity will not considered as CSR expenditure;
iii. The companies can build their own capacities of their own personnel as well as those of their implementing agencies through Institutions with established track records of last three financial years. However, administrative overhead in any case shall not exceed 5% of total CSR expenditure in one financial year.
iv. As per Rule 6, following shall be included in CSR Policy:
v. The list of programmes or projects which finds its place in the purview of Schedule VII;
vi. The modalities for exaction of CSR projects;
vii. The schedules for implementation of CSR projects;
viii. Monitoring process of such projects;
ix. Specific declaration to the effect that surplus arising out of the CSR projects shall not form part of the business profit of a company.
1. SCHEDULE VII MANDATES EXPENDITURE FOR THE FOLLOWING ACTIVITY-
a. Eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation and making available safe drinking water,
b. Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects,
c. Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, daycare centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward ,
d. ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agro forestry, conservation of natural resources and maintaining quality of soil, air and water;
e. Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional art and handicrafts,
f. Measures for the benefit of armed forces veterans, war widows and their dependents;
g. training to promote rural sports, nationally recognised sports, paraolympic sports and Olympic sports; 8) Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women;
h. contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government,
i. Rural development projects,
j. Slum Area Development
I. EFFECT OF NONE COMPLYING WITH CSR PROVISONS:
If a company fails to provide or spend such amount, the Board shall specify reasons for not spending the amount in its report.
As per FAQ of ICSI, on question of consequence for non-compliance of CSR provisions, the concept of CSR is based on the principle ‘comply or explain’. Section 135 of the Act does not lay down any penal provisions in case a company fails to spend the desired amount. However, sub-section 8 of section 134 provides that in case the company fails to spend such amount, the Board shall in its report specify the reasons for not spending the amount. In case the company does not disclose the reasons in the Board’s report, the company shall be punishable under section 134(8). This view of ICSI seems to be for the reason of provision of section 134(3) (o).]
[3]Provision Added and Omitted:
Salaries paid by the companies to regular CSR staff as well as to volunteers of the companies (in proportion to company’s time/hours spent specifically on CSR) can be factored into CSR project cost as part of the CSR expenditure. [This para stands omitted as Rule 4(6) amended by notification dated 12.09.2014 – Refer Circular 36/2014 dated 17.09.2014.
Net worth meaning
As per Section 2(57), ‘NW’ = (Paid Up Share Capital + All Reserves Created Out of Profits + Securities Premium Account) – (Accumulated Losses + Deferred Expenditure and Miscellaneous Expenditure not Written Off).
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S. No. |
FAQ’s |
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1 |
To Whom CSR will applicable? |
| Every company having
i. net worth of rupees five hundred crore or more, or ii. turnover of rupees one thousand crore or more or iii. a net profit of rupees five crore or more during any financial year |
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2. |
What is meaning of any financial year mentioned above? |
| General Circular No. 21/2014, Dated: 18.06.2014
“Any Financial year” referred under Sub- Section (1) of Section 135 of the Act read with Rule 3(2) of Companies CSR Rule, 2014 implies any of the three preceding financial years. As per ICSI FAQ’S A company which meets the criteria in any of the preceding three financial years (i.e. 2011-12, 12-13, 13-14) but which does not meet the criteria in financial year 2014-15 will need to constitute CSR Committee and comply with provisions of 135 (2) to (5) in the year 2014-15. |
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3. |
If the company has made profits in the years earlier to 2011-12, then is there need to comply with the provisions of Section 135? |
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if the company has made profits in the years earlier to 2011-12 but not in The years 2011-12, 2012-13 or 2013-14, it need not comply with section 135. |
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4. |
For compliance under section 135 i.e. Corporate Social Responsibility, from which Financial Year CSR Expenditure & Reporting Begins? |
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The constitution of CSR Committee, preparation of CSR Policy, the spending of amount on CSR activities needs to be during the financial year 2014-15.
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5. |
If section 135 applicable on any company for f.y. 2014-15, then what is the time period for investment on CSR activity? |
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Companies have to spend the amount on CSR activities as required by section 135 during the F.Y. 2014-15 and Reporting of the same would be in 2015 Board‘s Report or otherwise state the justification for the same in Board Report. |
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6. |
Whether expenditure by Company for fulfillment of any Act/Statute of Regulations will be count as CSR expenditure? |
| No, Would not count as CSR expenditure. | |
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7. |
In case the company has appointed personnel exclusively for implementing the CSR activities of the company, can the expenditure incurred towards such personnel in terms of staff cost etc. be included in the expenditure earmarked for CSR activities? |
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Salary paid by the companies to regular CSR staff as well as to volunteers of the Companies (in proportion to company’s time/hours spent specifically on CSR) can be factored into CSR project cost as part of the CSR expenditure. |
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8. |
Whether CSR applicable on private limited company also? |
| Yes ,
If private Company fulfill the criteria given under section 135(1) then CSR will be applicable on that private limited company also. |
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9. |
As per Section Constitution of CSR committee required on Independent Director, whether this condition applicable on Private Company also. |
| No.
In case of Private Limited Company, CSR Committee may consist only two Board of Directors. |
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10. |
Whether CSR expenditure of a company can be claimed as a business expenditure? |
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The Finance Act, 2014 provides that any expenditure incurred by an assessed on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessed for the purposes of the business or profession. Accordingly, the amount spent by a company towards CSR cannot be claimed as business expenditure. |
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11. |
Whether the average net profit criteria in section 135(5) is Net profit before tax or Net profit after tax? |
| NET PROFIT BEFORE TAX
The explanation to section 135(5) states that “average net profit” shall be calculated in accordance with section 198 of the Companies Act, 2013. In terms of section 198(5) (a) in making computation of net profits, income-tax and super-tax payable by the company under the Income-tax Act, 1961 shall not be deducted. Therefore, the net profit criterion in section 135(5) is net profit before tax. |
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12. |
Can the CSR expenditure be spent on the activities beyond Schedule VII? |
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MCA vide General Circular No. 21/2014 dated June 18, 2014 has clarified that the statutory provision and provisions of CSR Rules, 2014, is to ensure that while activities undertaken in pursuance of the CSR policy must be relatable to Schedule VII of the Companies Act 2013. However, the entries in the said Schedule VII must be interpreted liberally so as to capture the essence of the subjects enumerated in the said Schedule. The items enlisted in the Schedule VII of the Act, are broad-based and are intended to cover a wide range of activities. |
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13. |
Whether following activities would be qualified CSR Expenditure? |
| Event of Marathon NO
Event of Award NO Event of Charitable Contribution NO Event of Advertisement NO Event of TV sponsorship programme NO |
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14. |
Merely being a holding or subsidiary company of a company which fulfils the criteria under section 135(1) make the company liable to comply with section 135, unless the company itself fulfils the criteria |
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No, It doesn’t make the company liable to comply with section 135, unless the company itself fulfils the criteria. |
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15. |
If section 8 company fulfils the criteria of section 135(1) then, whether provisions of CSR are applicable on Section 8 Company? |
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There is no specific exemption given to section 8 companies with regard to applicability of section 135, hence section 8 companies are required to follow CSR provisions |
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16. |
Can donation of money to a trust by a company be treated as CSR expenditure of the company? |
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The Ministry of Corporate Affairs has vide General Circular No. 21/2014 dated June 18, 2014 has clarified that Contribution to Corpus of a Trust/ Society/ Section 8 companies etc. will qualify as CSR expenditure as long as (a) the Trust/ Society/ Section 8 company etc. is created exclusively for undertaking CSR activities or (b) where the corpus is created exclusively for a purpose directly relatable to a subject covered in Schedule VII of the Act |
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17. |
In case of companies having multi-locational operations, which local area of operations should the company choose for spending the amount earmarked for CSR operations? |
| As per ICSI FAQ no. 44
Proviso to Section 135(5) of the Companies Act 2013 provides that a company shall give preference to the local area and the areas around it where it operates for Spending the amount earmarked for CSR activities. In case of multi-locational operations, the company could exercise discretion in choosing the area for which it wants to give preference. |
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18. |
If a company having turnover of more than Rs. 1000 crores or more has incurred loss in any of the preceding three financial years, then whether such company is required to comply with the provisions of the section 135 of the Companies Act, 2013? |
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As per the provisions of section 135 of the Act, one of the three criteria has to be satisfied to attract Section 135. Therefore, if a company satisfies the criterion of turnover, although it does not satisfy the criterion of net profit, it is required to comply with the provisions of Section 135 and the Companies (CSR Policy) Rules, 2014. But, since there are no profits, the company may not spend any amount but explain the reasons for not spending the amount in its Boards Report. |
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19. |
What is the treatment of expenses incurred beyond that of mandated CSR spend? or There are instances of CSR activities that are in the project mode which require funds beyond that of the mandated 2%. Will such expense, where incurred, be counted in subsequent Financial years as part of CSR expenditure? |
| As per ICSI FAQ- 54
In terms of section 135(5), the board of every company, to which section 135 is applicable, shall ensure that the company spends, in every financial year, at least 2% of the average net profits of the company made during the three preceding year. There is no provision of spreading over the expenditure incurred in a particular year over the next few years. The words used here is at least. Therefore any Expenditure over 2% could be considered as voluntary higher spend. However, in case, a company does not want to spend the 2% in the subsequent year on account of it having spent a higher amount in the previous year, the Board’s report may state so. |
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20. |
Whether it is mandatory to display CSR activity on website? |
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The Board of Directors of the company shall, after taking into account the recommendations of CSR Committee, approve the CSR Policy for the company and disclose contents of such policy in its report and the same shall be displayed on the company’s website, if any |
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21. |
Whether reporting of CSR is mandatory in Board report? |
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The Board’s Report of a company covered under these rules pertaining to a financial year commencing on or after the 1st day of April, 2014 shall include an annual report on CSR containing particulars specified in Annexure. |
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22. |
There is no need to prepare director report for Foreign company so whether it is mandatory for foreign Company also to give reporting of CSR activity? |
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In case of a foreign company, the balance sheet filed under sub-clause (b) of sub-section (1) of section 381 shall contain an Annexure regarding report on CSR. |
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23. |
Whether profit arise from surplus of CSR activity form part of profit of the company |
| No,
The surplus arising out of the CSR projects or programs or activities shall not form part of the business profit of a company |
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| 24. |
Whether contribution to political party consider as CSR activity? |
| NO,
Contribution of any amount directly or indirectly to any political party under section 182 of the Act, shall not be considered as CSR activity. |
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25. |
Whether CSR projects or programmes for employee of the Company and their family will form part of CSR activity? |
| NO,
The CSR projects or programs or activities that benefit only the employees of the company and their Families shall not be considered as CSR activities in accordance with section 135 of the Act’ |
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26. |
Whether CSR projects and programme undertake outside India consider as CSR activity? |
| NO,
CSR projects and programme undertake in India only consider as CSR activity. |
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| 27. |
Whether company can collaborate with another company for CSR activity and project? |
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A company may also collaborate with other companies for undertaking projects or programs or CSR activities in such a manner that the CSR committees of respective companies are in a position to report separately on such projects or programs |
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28. |
How to calculate net profit for the purpose of Section 135? |
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For the purposes of section 135 “average net profit” shall be calculated in accordance with the provisions of Section 198 |
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29. |
What should be the compliance if company fails to spend such amount on corporate social responsibility? |
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if the company fails to spend such amount, the Board shall, in its report made under clause (o) of Sub-Section (3) of Section 134, specify the reasons for not spending the amount |
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30. |
Is CSR spending required to be done by the Company directly or such amounts can be contributed to charity/ NGO/ section 25 company. Will such contribution qualify as CSR spend? |
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Yes. Contribution by the Company to such trusts, NGOs etc also qualify for CSR spend if it meets the track record and other criteria as per Rule 4(2) of Companies (CSR Policy) Rules, 2014. |
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31. |
Treatment of shortage in CSR spend and disclosure and possibility of carry forward of excess spending of CSR. Is there any need for creation of a provision in the event of a shortage in spending? |
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Any shortfall in spending in CSR shall be explained in the financial statements and the Board of Directors shall state the amount unspent and reasons for not spending that amount. Any such shortfall is not required to be provided for in the books of accounts. However, if a company has already undertaken certain CSR activity for which a contractual liability has been incurred then, a provision for the requisite amount payable to record that liability needs to be recognized as per the applicable Accounting Standards. Any amount excess spent (i.e., more than 2% as specified in Section 135) cannot be carried forward to the subsequent years. However, the company is entitled to disclose in their Annual Reports of subsequent years any such excess spending of Previous years while giving reasons for not spending in those later years. |
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32. |
Whether any dividend received from other companies in India will be include in Net Profit? |
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Any dividend received from other companies in India, which are covered under and complying with the provisions of section 135 of the Act as well as any dividend received from a company incorporated outside India shall also be excluded from the Net Profit |
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33. |
Whether resolution can be pass by Circulation resolution by CSR Committee? |
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Yes there is no restriction to pass resolution by circulation resolution by the committee. It can pass such resolution. |
[1] Net Profit for the CSR has been discussed at the end of the Article.
[2] Persons resident in India authorized to accept on behalf of the company service of process and any notices or other documents required to be served on the Company.
[3] Refer Circular 21/2014 dated 18 June 2014
(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at [email protected])
Read Other Articles Written by CS Divesh Goyal
(Republished with amendments)
Author Bio
I have a query regarding CSR .
Police head quarter of our state of India has requested our company to grant 20 Lakhs grant for education of children pf police department upto rank of inspector.
Can we consider this activity in CSR funding?I understand that this can be considered against schedule 7 of promoting education.
But my doubt is can speacific goverment departments of states asks for such grants against CSR activities of their famillies?
Please suggest.
if there is loss in any year for computing average profit shall it be deducted.
HI,
last 3 years P&L – profits as per section as follows
1st year -profit 26 crs
2 nd year – profits 19 Crs
3 rd year – Loss 30 crs
during the year can i disclose the CSR ??
what are the rules that governs transfer of csr funds from company to trust. pls inform.
i have a query, sir? are the banking sector also included in CSR
I wish to know that, if there is a Trust engaged in various activities including any of the activities falling under Schedule VII of Indian Companies Act 2013 and has been registered under Income Tax Act 1961 for exemption u/s 80 G.
What other formalities are required to be complied with so that donation received by the given trust exclusively for the purpose of an activity specified under Schedule VII, from body corporate be treated as CSR Expenditure for those companies.
Alok Agrawal
9721192105
can a company lend a loan to other company under CSR policy
Tree plantation within the premises of company can be considered as CSR or not?
Hi
Net profit for Section 135(1) is after tax or before tax.
Net profit for 135(5) is before tax. But i am confused with section 135(1).
pls help.
Hi,
Net profit for determining applicability of Section 135(1) is before tax or after tax.
section 135(5) is after tax but i wanted to know about net profit for section 135(1)
thanks
For CSR applicability we have to consider Net Profit Before tax or Net profit After tax?
For CSR expenditure I am sure Net profit Before tax but I want to now for applicability?
What is GST rate applicable on CSR activities
Hello,
Can CSR funds be allotted to normal company like partnership or proprietorship if doing water cleaning projects?
Dear Sir,
Suppose if any company has come into existence one year ago and has fulfilled one of threshold of Section 135 and CSR Committee constitution is applicable to it now, in that case how to deal with the provision of average of net profit of preceding 3 years, since the company has not been in existence in last 3 years.
Dear Goyal Sir,
We Appreciate Your Articles On The CSR-Law,…Especially The Mandatory Aspect Of The CSR In India, As Published On The Website -Blog …
We Are An NGO Based In The Chhattisgarh State…And Wholly Dedicated To Work Under The Mandatory CSR-Rule In India, As Effected By The MCA;And Our Striving Also Includes To Convince The Corporates About The 2% Mandatory Aspect Of The CSR-Spending ,Which Is To Be Shared With The Implementing Agencies ,Like The NGO/NPO etc…
And This Moment Is The High Time, When We Are ,HUMBLY, Requesting The Corporate Donors And Partners ,To Be With Us With At-least 2% Of The Average PBT[Profit Before Tax] For The Past Three Years, Since 01/04/2017…
Yet We Find Reluctant Attitude By Some Of The Corporates, Who Do Not Seem To Abide By The Mandatory Aspect Of The CSR…
And Your Informative And Enlightening Articles, REALLY, EMPOWER & ENRICH Us, Being An NGO/NPO…To Keep Moving Forward With RIGHT-KNOWLEDGE On The CSR….
Hope To READ Further ,Similar, INFORMATIVE CONTENT By You…
Thanks…
Any judgement for compounding of offence for non-compliance of CSR Policy?
Whether jointly controlled operations’ profit shall be considered for calculation of net profit? as profit from overseas branches has been specifically excluded but there is no clarity about the overseas Jointly controlled operations and associates. Please
will one time profit or long term capital Gain form part of adjusted net profit of a private limited company for determining eligibility under CSR?
Is there any Certifying Authority to certify the working of Net Profit for the purpose of CSR?
Best information
Hi Divyesh,
Good Collation of Information.
At question no 32, you have written that dividend received from foreign company also to be excluded for CSR calculation. However, CSR rules excludes only divident received from Indian companies which are covered under section 135. Can you please help me with the source from you are forming this opinion of excluding dividend from foreign companies also.
Thanks,
Sagar
Dear Professionals,
For calculating the spending required under CSR provisions, it is very clear that it is Net Profit Before Tax.
But for determining the applicability of CSR provisions whether NP before Tax or NP after tax should be reckoned ??
Thanks in advance,
Sathyan G
Does State bank of india comes under companies act and whether csr provisionns under companies act are mandatory for SBI?
For how many years can a company hold the amount unutilized as CSR activities in CSR fund?
IS there any time limit?
for 14-15 compnay has Net profit before tax-6cr and Net profit after tax-4.2cr.. whether CSR is applicable?
If the company pays amount towards CSR activity to third party but the activity has not taken place or is partially completely. Can a company consider the whole amount spent as expenditure incurred and charge the same to the P&L?
Namaste all, can csr fund be utilise for start ups (general business or social etreprenuer)?
@Nikhil Kalra, on merger the liabilities, duties and obligations of transferor company is transferred to the transferee company. It may be also stated such in the scheme of merger. Practically speaking CSR contribution was an obligation on the part of transferor company, which arose before the effective date. Therefore, in my opinion merger shall not be held as a ground to avoid CSR contribution. Others views may also be sought in this regard.
My Query is:
Company A:
Net Profit of financial Year:
2013-14: 5.10 Crores
2012-13: 2.00 Crores
2011-12: 1.50 Crores
Then company is liable to contributes to CSR as profit is more than 5 Crores
Company B
Net profit of financial Year
2013-14: 2.00 Crores
2012-13: 1.50 Crores
2011-12: 1.00 Crores
Then company is not liable to contribute to CSR as profit is not more than 5 Crores in any of financial year
Now Suppose Company A (Transferor) merge with Company B (Transferee) w.e.f. appointed date i.e. 01.04.2014 by high court order dated 31.12.2015
Now situation is:
Company A (Transferor) net profit
2014-15: 1.30 Crores
2013-14: 5.10 Crores
2012-13: 2.00 Crores
Company B (Transferee)
2014-15: 2.50 Crores
2013-14: 2.00 Crores
2012-13: 1.50 Crores
Now Merger Appointed date is: 01.04.2014
So profit of merge entity are:
2014-15: 3.80 Crores (Merge Profit)
2013-14: 2.00 Crores (profit of transferee as appointed date 01.04.2014)
2012-13: 1.50 Crores (profit of transferee as appointed date 01.04.2014)
As per merge entity financials section 135 (1) is not applicable so contribution to CSR is not applicable
But if we consider Transferor company standalone financials as the company have profit more than 5 Crores in preceding three years i.e. in the year 2013-14 so tell me what to do
whether we need to spend CSR amount in merge entity or we can take the benefit of merger.
@ sneha as far as CSR contribution under Companies Act 2013, as provided under Section 135 is considered, the contribution shall be such that it shall fall under the CSR expenditure and shall relate to CSR policy of the Board, through the recommendation of the BoD. In any case, it shall also in alignment with Schedule VII activities. If the donation received by your NGO is with respect to a corpus fund, clearly specifying the mode of use of fund and activity, then you cannot transfer such fund unless it was agreed by the Board and CSR Committee.
As NGO we have already received donation form company. can we donate to another NGOs for run same CSR activities?
Can a Company form a TRUST for CSR?
If yes, then what is its procedure, Rules & Regulation for the same.
Does company asked to it’s employees to donate in CSR project from their salary? In Payslip it will shows at deduction in “Miscellaneous” category.
We are holding a traditional music festival at heritage sites in Bhopal . The performing artists are Hariharan ( vocal) Niladri ( Sitar) , Sabri Brothers ( Qaualli) , Rakesh Chaurasia ( Flute), Aman Ali Khan ( Tabla) , Rahul Sharma ( Santoor ) etc at heritage sites. The festival is free for all. We have also signed an MOU that we will be holding this annual even t for the next 2 years as well
We are paying directly to the artists, not through any mediating company.
Please advice whether this will qualify for CSR under Companies Act. 2013 ( 18 of 2013) Section VII item (v) .
Yes. It can be treated as CSR expenditure. This comes under environment and sustainability category of CSR. By installing the solar panels, you are reducing the GHG emissions which contribute to CSR
Is Earn & Learn Scheme is Covered under CSR ACT. If yes please tell me the clause under which it lies.
Our company annual CSR budget will work out to Rs.10 lacks only. While we try to engage a NGO they claim to around 15% of the CSR Budget(Rs.10,000 permonth as stipend which is nominal too for a village adoption program) itself as their stipend. IS there any limit provided to cut these kind of overheads.
IF company incorporated in 2014 Dec. on 31st march 15 its net profit exceeded 5 crore. whether CSR Sec will apply ? if apply then we have only one year profit. but Act says three year average net profit.
one year profit will consider or not????? help me.
what will happen if there is a loss in one p.y. out of three preceding year?please help me to calculate the 2% of avrg under sec 135 of comp act 2013
Dear Mathan
Query regarding computation of net profit for CSR expenditure.
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We have deposited some amount in bank and it will fetch interest and accounted in our books of accounts as interest income earned on fixed deposits with banks. It not a business income and come under head income from other sources of income tax 1961.
clarification
with the relevant law/ rules / case law with respect to companies act 2013, Net Profit is profit as section 135(5) of the act which says that net profit will be calculated as per section 198 of the Act
it means it will not be deducted even though it comes under the head income from other sources of income tax 1961
Thanks in advance for your reply.
Regards,
Mathan
Dear Rah
Amount spent by a company on staff welfare schemes, will not qualify for expenditure incurred for CSR AS PER RULE 4(5) OF COMPANIES (CORPORATE SOCIAL RESPONSIBILITY POLICY) RULES, 2014
Amount spent by a company on staff welfare schemes, will it qualify for expenditure incurred for CSR
I have a query regarding applicability of section 135 on a company in existence less than three years. It goes as follows :
As per the section135 (1) if the company fall in any of the category during any financial year, it shall constitute the CSR committee. but
As per section 135(5) – The Board of every company referred to in sub-section (5), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy (it implies that company must be in existence for at least three years)
WHETHER PROVISIONS ARE APPLICABILITY TO A COMPANY LESS THAN 3 YEARS
I have a query regarding computation of net profit for CSR expenditure.
———————————————————————-
We have deposited some amount in bank and it will fetch interest and accounted in our books of accounts as interest income earned on fixed deposits with banks. It not a business income and come under head income from other sources of income tax 1961. In this regard, please clarify with the relevant law/ rules / case law with respect to companies act 2013, if any for reducing the same from the net profit before arriving the actual net profit of the business to set aside / provide the amount for CSR expenditure.
Thanks in advance for your reply.
Regards,
Mathan
Please advise – if a company proposes to change a part of the machinery with latest technology machine which results in reduction of carbon footprint – can it be CSR u/s135 as the act leads to reduction of pollution – environment sustainability.
can I ask LIC housing finance limited to bring down my home loan interest citing my reservation category SC, I’m an employee with AIRINDIA
If a Company installs SOLAR PANELS at its factory premises and electricity so produced is captively consumed (i.e: consumed for the factory premises itself), can the installation expenses of SOLAR PANELS be treated as a CSR expenditure?? – See more at: https://taxguru.in/company-law/32-faqs-corporate-social-responsibility-csr.html#sthash.ZZmKI4Hc.dpuf
definitely No
Pls refer qn no 16 & 30 where in it has been stated that any contribution to trust/NGO qualifies for CSR activities. Also refer qn no 10 wherein it has been stated that CSR activities cannot be claimed as business expenditure under income tax Act. My query is based on the decsion of SC in the case of Britannia industries relating to expenditure on guest house. The SC whild disallowing the expenses on guest house as per the Provisions of the Act prevailing at that time has also answered the aleternate claim of the assessee to allow rent, repairs incurred on the guest house maintanenance under the genral section 30 & 31 of the IT Act, the SC has categorically stated tha once the expnses are disallowed under section 37 they cannot be allowed under other sections. Suppose if a company makes a donation to a trust/assocaition/research centre and treat the same as CSR activities. Further the contribution is also eligible for deduction under section 80-G/35, the company after disallowing the contirbution claim the same under section 80G/35, which puts them in a better footing against those companies which spends on CSR activities and disallow the same. The companies who are contributing get the benefit under section 80G/35. Is this correct or will the SC decision will come in to play
thank you for your time and effort in collating and sharing knowledge .Pl keep up this good work .
I have a query regarding CSR Expenditure. It goes as follows:
If a Company installs SOLAR PANELS at its factory premises and electricity so produced is captively consumed (i.e: consumed for the factory premises itself), can the installation expenses of SOLAR PANELS be treated as a CSR expenditure??