prpri Corporate Social Responsibility (CSR)- Recent Changes Corporate Social Responsibility (CSR)- Recent Changes

Section 135 of Companies Act, 2013 pertaining to Corporate Social Responsibility (CSR) is applicable to following class of companies who during the immediately preceding financial year have:

  • Net profit before tax of Rs. 5 Crore or more or
  • Net worth of Rs. 500 Crore or more or
  • Turnover of Rs. 1,000 Crore or more

In this regard, the Board of Directors of such Companies shall mandatory:

  • Constitute a CSR Committee, who will

a. Formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company

b. Recommend the amount of expenditure to be incurred on the activities referred to in Schedule VII and

  • Monitor the Corporate Social Responsibility Policy of the company from time to time.

Consisting of three or more directors, out of which at least one director shall be an independent director

  • Ensure that the Company spends, in every financial year at least 2% of the Average Net Profits of the immediately three preceding financial years *(or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years) only in the CSR activities as prescribed under Schedule VII (CSR Rules)

Note:

1. if the company fails to spend such amount, the Board shall, in its report under section 134, specify the reasons for not spending the amount and, *unless the unspent amount relates to any ongoing project, transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year

2. In case of ongoing CSR project, any unspent amounts to be transferred to a separate bank account within 30 days from the end of financial year.

3. Such amounts to be spent within a period of 3 financial years from the date of such transfer.

4. Failing which, the company shall transfer the same to a fund as specified in the Schedule VII (CSR Rules) within 30 days from the end of the 3rd financial year.

*Amendments are yet to be notified*

Penalties for Non-compliances:

To the Company:  Fine not less than Rs. 50,000/- but which may extend to Rs. 25 lakhs, AND

To every officer in default: Imprisonment for a term up to 3 years or Fine not less than Rs. 50,000/- but which may extend to Rs. 5 lakhs, or with both.

Schedule VII

Activities which may be included by companies in their Corporate Social Responsibility Policies

Activities relating to:—

Activities which may be included by companies in their Corporate Social Responsibility Policies Activities relating to:—

(i) Eradicating hunger, poverty and malnutrition, promoting health care including preventinve health care and sanitation including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water.

(ii) promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects.

(iii) promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups.

(iv) ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga.

(v) 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;

(vi) measures for the benefit of armed forces veterans, war widows and their dependents;

(vii) training to promote rural sports, nationally recognised sports, paralympic sports and olympic sports

(viii) contribution to the prime minister’s national relief fund or 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;

(ix) contributions or funds provided to technology incubators located within academic institutions which are approved by the central govt.

(x) rural development projects

(xi) slum area development.

Explanation.- For the purposes of this item, the term `slum area’ shall mean any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force.]

(xii) disaster management, including relief, rehabilitation and reconstruction activities.

Exceptions/Modifications/Adaptations

1. In case of Specified IFSC Public Company – Section 135 shall not apply for a period of five years from the commencement of business of a Specified IFSC public company –  Notification Dated 4th January, 2017.

2. In case of Specified IFSC Private Company – Section 135 shall not apply for a period of five years from the commencement of business of a Specified IFSC private company –  Notification Dated 4th January, 2017

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2 Comments

  1. Bhushan Dewan says:

    With respect to corporates’ adverse reaction to recent proposed changes in the Companies Act so as to enforce compliance to CSR Law of 2% mandatory spend, I wish to share the following.
    Please understand that in India Tax to GDP ratio is about 17-18% — and that too major portion of tax collections come from indirect taxes which are paid by common man– where as same ratio in Europe is about 25% and in USA it’s about 40%. Besides, considering the severe poverty, infrastructure lag in India, and hardly any social security net like unemployment dole etc, a mere 2% obligation of only about 15000 companies (out of the about 1million listed companies) more than specifed size as per Section 135 of Companies Act-2013 is hardly a matter for businesses to complain about. The real trouble is that businesses think that their only one-point agenda is to maximize profit for shareholders, and they feel that asking them by law to attend to societal concerns should not be done and instead they should just carry on only with vague glossy brochures publicising pictures of some tailoring classes here and planting a few saplings there. Instead harboring a sense of entitlement that they are above any query and law because they’re generating employment, businesses are expected by society to display a sense of responsibility towards all other stakeholders besides exclusive focus on shareholders’ profit.

    1. rajesh shroff says:

      If govt. wants that Corporate should participate in CSR activities then what is the need to have a separate Sec 135 for this. Why not straight away increase the Income tax rates and then govt. keeps aside the increased amount and do CSR activities itself. Why one more legal section and increase the compliance. Why make things complicated. The corporate as such is struggling to meet so many deadlines and reporting like TDS, GST, TCS, etc. However, after paying taxes, govt. has no business to bring such laws and increase the burden. As such the amount of tax collected is huge and then to see that amount collected being spent on items like Rafale planes and other unnecessary defence items in name of SECURITY OF COUNTRY. In fact people are more afraid of POLITICIANS than other country. Where do you see justified utilisation of amount collected. Why not govt. build hospitals, schools, colleges & other public utilities. Do not compare % of taxes in isolation, compare the same with Services given to citizens by those high tax countries working age and after retirement. Due to huge populations ( around 6 to 40 times) more than Europe and America, amount of direct & indirect taxes collected is huge (as per PM, country is dependent on taxes collected from one item i.e. LIQUOR) but due to corruption and unwise spending we cannot see any development. Some wise IAS / IRS came out with novel idea and then politicians introduce this SECTION. Again we will come with REGIME of having 100 types of taxes with new nomenclatures.

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