AMENDMENT IN SECTION 135 OF COMPANIES ACT 2013
1. Applicability of Section 135:-
As per section 135(1) of Companies Act, 2013, following Companies having,
Shall constitute Corporate Social Responsibility committee of the board consisting of 3 or more directors, out of which 1 director shall be independent director.
2. Role of CSR Committee:-
3. Amount to be Spent on CSR Activities:-
As per Companies Act, 2013 board of every Company as referred in Section 135(1) shall ensure company spends atleast 2% of average net profits of the company made during the 3 immediately preceding Financial Years.
Below is the example for calculating CSR Expenditure:-
|Net Profits in 3 preceding FY:-|
|Total Net Profit for 3 FY||45,00,000|
|Minimum amount to be spent on CSR activities in FY 2018-19||(45,00,000*0.02)||90,000|
4. Amendments’ in Section 135 of Companies Act, 2013:-
The Companies (Amendment) Act, 2019 amended section 135 dealing with Corporate Social Responsibility. The Companies (Amendment) Act, 2019 received President’s assent and was published in Official Gazette on 31st July, 2019.
A. To calculate CSR expenditure, average net profit of 3 immediately preceding financial year had to be considered. But, there used to be concerns on how to calculate CSR expenditure for a company which is newly incorporated or which has not completed 3 years of its operations and satisfies any one of the condition as specified u/s 135(1).
With the recent amendment, there is clarity with respect to the above. As per amendment act, Company who has not completed a period of three financial years since its incorporation shall consider the average net profits earned by it during financial years after incorporation.
B. Prior to amendment act, if a company has not spent the earmarked CSR expenditure, it had to disclose the reasons in its board report at the annual general meeting of the company.
In this regard, Amendment Act provides that:-
Fund specified under schedule VII are:-
1. Contribution to the Prime Minister’s national relief fund.
2. Any other fund set up by the central govt. for socio – economic development and relief and welfare of the schedule caste, tribes, other backward classes, minorities and women;
1. The company within a period of 30 (thirty) days from the end of the financial year has to transfer the unspent contribution amount to a special account to be opened in any scheduled bank, to be called ‘the Unspent Corporate Social Responsibility Account’.
2. The amount so transferred to the designated account, is to be utilized in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of next 3 (three) financial years from the date of such transfer.
3. If the Company fails to utilize the said amount, it is required to transfer the same to a Fund specified in Schedule VII, within a period of 30 (thirty) days from the date of completion of the third financial year.
C. The Amendment Act has introduced penal provisions for non-compliance in reporting, utilization and transfer of the unspent CSR amount;
1. The Central Government is yet to prescribe conditions categorizing ‘ongoing project’ for purpose of section 135(6) of the Act.
2. The Central Government will issue general or special directions for a Company or class of Companies for ensuring compliance of provisions of section 135 of the Act.
3. The amendments to section 135 of the Act have not yet come into force. The Central Government by notification in Official Gazette shall appoint the effective date.
4. With amendment act under section 135 of Companies Act, it becomes imperative for corporate India to ensure adequate compliance of this law.
The information which is summarised herein does not constitute financial or other professional advice and is general in nature. It does not take into account your specific circumstances and should not be acted on without full understanding of your current situation and future goals and objectives by a fully qualified advisor.
Name:- Hosakote Akshay Shrinivas, Address:- Gurudatta Layout, Bangalore -560 085, Email id:- [email protected]