Now days calculations for CSR and Managerial Remunerations holds high important for the corporates world.
Section 198 lays down the manner of calculation of Net Profit of a company in any financial year for the purpose of both CSR and Managerial Remuneration.
It is the duty of company secretaries to assist in these calculations and easy out the understand of section to the board and other professionals. However it sometimes become complicated to calculate the exact amount of net profits earned, hence the following chart is a step taken to make it a simplified procedure:-
| Sr. No. . | Particulars | Add | Less | |
| Net Profit for F/Y | ||||
| 1. | Bounties and subsidies received from any Government, or any public authority constituted or authorized in this behalf, by any Government. (Except as Central Government directs otherwise) | √ | ||
| 2. | Profits, by way of premium on shares or debentures of the company, which are issued or sold by the company. | √ | ||
| 3. | Profits on sales by the company of forfeited shares. | √ | ||
| 4. | Profits of a capital nature including profits from the sale of the undertaking or any of the undertakings of the company or of any part thereof. | √ | ||
| 5. | Profits from the sale of any immovable property or fixed assets of a capital nature comprised in the undertaking or any of the undertakings of the company.
(unless the business of the company consists, whether wholly or partly, of buying and selling any such property or assets) |
√ | ||
| 6. | Where the amount for which any fixed asset is sold exceeds the written- down value thereof, credit shall be given for so much of the excess as is not higher than the difference between the original cost of that fixed asset and its writtendown value. | √ | ||
| 7. | Any change in carrying amount of an asset or of a liability recognised in equity reserves including surplus in profit and loss account on measurement of the asset or the liability at fair value. | √ | ||
| 8. | All the usual working charges | √ | ||
| 9. | Directors’ remuneration | √ | ||
| 10. | Bonus or commission paid or payable to any member of the company’s staff, or to any engineer, technician or person employed or engaged by the company, whether on a whole-time or on a part-time basis | √ | ||
| 11. | Any tax notified by the Central Government as being in the nature of a tax on excess or abnormal profits. | √ | ||
| 12. | Any tax on business profits imposed for special reasons or in special circumstances and notified by the Central Government in this behalf. | √ | ||
| 13. | Interest on debentures issued by the company | √ | ||
| 14. | Interest on mortgages executed by the company and on loans and advances secured by a charge on its fixed or floating assets. | √ | ||
| 15. | Interest on unsecured loans and advances | √ | ||
| 16. | Expenses on repairs, whether to immovable or to movable property, provided the repairs are not of a capital nature. | √ | ||
| 17. | Outgoings inclusive of contributions made under section 181. | √ | ||
| 18. | Depreciation to the extent specified in section 123. | √ | ||
| 19. | The excess of expenditure over income, which had arisen in computing the net profits in accordance with this section in any year which begins at or after the commencement of this Act, in so far as such excess has not been deducted in any subsequent year preceding the year in respect of which the net profits have to be ascertained. | √ | ||
| 20. | Any compensation or damages to be paid in virtue of any legal liability including a liability arising from a breach of contract. | √ | ||
| 21. | Any sum paid by way of insurance against the risk of meeting any liability such as is referred to in clause (20) | √ | ||
| 22. | Debts considered bad and written off or adjusted during the year of account. | √ | ||
Notes:-
In making the computation aforesaid, the following sums shall not be deducted, namely:—
(a) income-tax and super-tax payable by the company under the Income-tax Act, 1961, or any other tax on the income of the company not falling under point no. 11 and 12;
(b) any compensation, damages or payments made voluntarily, that is to say, otherwise than in virtue of a liability such as is referred to in point no. 20;
(c) loss of a capital nature including loss on sale of the undertaking or any of the undertakings of the company or of any part thereof not including any excess of the written-down value of any asset which is sold, discarded, demolished or destroyed over its sale proceeds or its scrap value;
(d) any change in carrying amount of an asset or of a liability recognised in equity reserves including surplus in profit and loss account on measurement of the asset or the liability at fair value.
Conclusion:-
The above items are taken and not to be taken for calculation of net profit as per section 198 of Companies Act, 2013, hope this will help.
Where the amount for which any fixed asset is sold exceeds the written- down value thereof, credit shall be given for so much of the excess as is not higher than the difference between the original cost of that fixed asset and its writtendown value
Can u give example for the above clause
What will come under Usual working Charges here
Hi Sir
Good. The Company has made profit for the last 3 years only, before that every year Company was in loss. Whether the Company is bound to spend CSR ? is it possible to deduct previous losses under section 198(4)(l) ?
till 2019 company was having profit and on average 3 years profit 2 % CSR expenses are worked our.But in 2019-20 & 2020-2021 there is loss hence lasy 3 years profit is Loss. will CSR expenses applicable to company.
Thanks for the details. One small change is that Directors remuneration should be added back.
can you share any example of csr computation