In the realm of modern business, Corporate Social Responsibility (CSR) has transcended mere philanthropy to become a strategic imperative. CSR, denoting Corporate Social Responsibility, extends beyond profit-centric operations, encompassing initiatives that contribute to societal, economic, and environmental well-being. This multifaceted commitment involves stakeholders ranging from employees and communities to customers and the environment, positioning companies as responsible global citizens. The formation of CSR committees is mandated for corporations meeting specific financial criteria, ensuring meticulous planning and execution. Financially, companies are obligated to allocate 2% of their average net profits over three years to CSR initiatives, underscoring a substantial commitment to societal welfare. Non-compliance comes with stringent consequences, compelling timely fund transfers and optimal fund utilization. Excess spending, however, is permitted with conditions, offering flexibility. The CSR committee’s composition and the board’s responsibilities in policy approval and implementation oversight underscore the significance of top-level commitment. Modes of CSR implementation, exemptions, administrative overhead limits, and strategies for surplus utilization further illuminate the nuanced landscape of CSR. This introduction sets the stage for a comprehensive exploration of CSR’s legal nuances, financial commitments, and strategic implications for businesses venturing into socially responsible endeavors.
What is CSR?
It is a social responsibility of corporates
CSR stands for Corporate Social Responsibility.
It refers to the initiatives and activities undertaken by a company to contribute to the social, economic, and environmental well-being of society. CSR activities go beyond a company’s core business operations and aim to make a positive impact on various stakeholders, including employees, communities, customers, and the environment.
Long-term well being of the company depends upon the well being of the society. This is because , company receives all it ‘s resources(money, material, men) from the society.
Which company’s are required to constitute CSR committee
Companies having
a) Net worth of ₹500 cr or more (or)
b) turnover of ₹1000 cr or more (or)
c) Net Profit of ₹ 5cr or more in the preceding F.Y
NETWORTH:
(Paid up share capital + Reserves created Out of profits + security Premium) -(Accumulated losses+ miscellaneous expenses not written off + revaluation reserve)
NET PROFIT:
Net Profit as calculated under sec 198
Less: Profit of foreign branches
Dividends received from Companies in India while complied with CSR
ACQUISITION OF CAPITAL ASSET
CSR amount may be spent for acquisition or creation of capital assets
However ,such capital asset shall be held by
a) Sec.8 company or Registered public trust or registered society having CSR registration number
b) Beneficiaries of the CSR project
c) any public authority
WHAT ARE NOT TREATED AS CSR
1. Activities undertaken in the normal course of business
2. Activities that benefit only the employees of the company & their family members
3. contention to political party
4. Activities undertaken outside India
HOW MUCH AMOUNT SHOULD WE SPEND FOR CSR ?
2% of average net profits during the 3 PREVIOUS FINANCIAL YEARS
CONSEQUENCES OF NOT SPENDING THE REQUIRED AMOUNT?
1. If the unspent amount is related to ongoing project, then such amount shall be transferred to a separate A/C (to be maintained by the company) within 30 days of closure of F.Y
2. Such transferred amount shall be utilized within 3 years . If not, it shall be transferred to funds specified schedule -vii within 30 days from the closure of 3rd Financial year.
3. If the unspent amount is related to other projects, then such amount shall be transferred to any of the funds specified in Schedule -vii, within 6 months of the closure of Financial year.
CONSEQUENCES OF SPENDING EXCESS AMOUNT
If in any year, actual CSR amount is more than the required 2%, then the excess amount can be setoff in any of the 3 succeeding years
COMPOSITION OF CSR COMMITTEE
1. Private company-Minimum 2 directors
2. Public company not having Independent director-minimum 2 directors
3. Public company having Independent director-minimum 3 directors( including 1 independent director)4. foreign company:
a) person appointed u/s 380 (person who is authorized to receive communications in India)
b) one other person nominated by foreign company
ROLE OF CSR COMMITTEE
1. To formulate and recommend a CSR policy
2. To recommend the amount to be spent on each CSR activity3. To monitor the implementation of CSR policy
ROLE OF BOARD OF DIRECTORS
a. Considering and approving the CSR policy recommend by CSR committee
b. Disclosing the contents of policy on the website
c. Deciding on the method of implementing the CSR policy
d. Ensuring that the activities included in CSR policy are undertaken by the company.
MODE OF IMPLEMENTATION OF CSR POLICY
CSR policy can be implementation
1. directly by the company
2. through section 8 company/Trust/Society established by the company alone
3. through section 8 company/Trust/Society established by the one company together with another company
4. through section 8 company/trust/society established by central govt/state govt.
5. through section 8 company/trust/society established by others and having track record of at least 3 years, in implementing similar programs
WHICH COMPANIES ARE NOT REQUIRED TO CONSTITUTE CSR COMMITTEE
1. A company which does not satisfy the criteria of net-worth, Turnover and net profit for 3 consecutive FYS shall not be required to constitute CSR committee
2. A company whose CSR obligation does not exceed 50 lakhs is not required to constitute CSR committee. In such a case, the obligations of the committee shall be discharged by Board of Directors.
EXPENDITURE ON ADMINISTRATIVE OVERHEADS
1. Administrative overheads means expenditure incurred by the company for managing and administering the CSR function
2. Administrative overheads shall not include the expenses incurred for designing, implementation, monitoring and evaluation of CSR planning
3. Board shall ensure that administrative overheads shall not exceed 5% of CSR expenditure for a FY.
UTILISATION OF SURPLUS ARISING OUT OF CSR ACTIVITIES
Any surplus arising out of CSR activities shall not be treated as business profits of the company and such surplus shall be utilized in the following manner:
a. option-1:such surplus shall be re-invested into the same project
b. option-2: such surplus shall be transferred to unspent CSR a/c and thereafter to be spent as per CSR policy and AAP
c. option-3:such surplus shall be transferred to a fund specified in schedule VII within 6 months of expiry of FY
UNSPEND AMOUNTRELATING TO ONGOING PROJECTS (MULTI YEAR PROJECTS)
- to be transferred to separate A/C within 30 days of closure of financial year to be utilized within 3 years
- if not utilized , to be transferred to any fund specified in SCH-VII within 30 days of closure of 3 rd. FY
RELATING TO OTHER PROJECTS( Single year projects)
- to be transferred to SCH-VII fund within 6 months of closure of FY.
Imp Note : Once CSR is applied in any one FY, Then it shall automatically applicable for next 3 Consecutive Financial years and then it shall be non- applicable only if, the Threshold limits are not crossed in all the last 3 FYS.
Conclusion:
Corporate Social Responsibility isn’t just a regulatory requirement; it’s a strategic move towards sustainable and inclusive business practices. Understanding the legal intricacies, consequences of non-compliance, and effective implementation strategies empowers companies to contribute meaningfully to societal well-being. As businesses evolve, CSR stands as a cornerstone for ethical and responsible corporate conduct.
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