Corporate Social Responsibility or commonly referred as CSR (hereinafter known as CSR Committee) is also called Corporate Citizenship or Corporate Responsibility which focuses on social issues, upliftment and its responsibility towards the society by maximizing the company’s positive impact and minimizing the negative impact on its social and physical environment. To look after the stakeholders viz customers, employees, governments, shareholders, environment by contributing towards the promotion of education, women empowerment, enhancing vocation skills, handicraft, creating opportunities to elevate the public sanitation, benefits for the army, war widows and their dependents. For this, company needs to constitute CSR committee.
> Now the question arises is it applicable to all the companies?
Every Company having net profit of Rs. 5 crore or more; or Turnover of Rs. 1000 crore or more; or net worth of Rs. 500 crore or more during the immediately preceding financial year shall constitute a Corporate Social Responsibility Committee of the Board.
Apart from the aforementioned company, any company which is not falling under the aforementioned criteria may constitute CSR committee.
Company includes its holding, subsidiary and a foreign company defined under section 2 clause (42) of the Act having its branch office or project office in India, which fulfils the criteria specified in section 135 (1) of the Companies Act, 2013.
Provided that net worth, turnover or net profit of a foreign company of the Act shall be computed in accordance with balance sheet and profit and loss account of such company prepared in accordance with the provisions of section 381 (1)(a) and section 198 of the Companies Act, 2013.
|Calculation of Profits for CSR:|
|Net Profit Before Tax (earned in India)||XXX|
|Less:||Dividends Received from other companies in India to whom Section 135 is applicable and are carrying out CSR Activities (i.e. 2% of Avg. PBT)||(XX)|
|Less:||Profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise||XXX|
|Net Profit for CSR Activities|
> By what time shall the committee be formed? / What is the time limit to form CSR committee?
a) No specific time limit has been prescribed in the act. Since, the company has to spend in every financial year at least 2% of the average net profits of the company made during the 3 immediately preceding financial years. Therefore, one can conclude that the company needs to constitute the CSR committee before the end of financial year in which the criteria becomes applicable.
> Composition of the Committee?
a) The committee shall consists of 3 or more directors out of which at least 1 director shall be an independent director.
Independent director has been defined U/s. 149(5) of the cos. Act, 2013.
Provided that the companies such as private company and one Person Company which doesn’t require to have 3 directors, along with unlisted public company which doesn’t require to appoint independent directors can constitute CSR committee with only two/one director.
> Role of the Committee?
A) The CSR committee Shall :-
(i) Formulate and recommend to the board, a CSR Policy Which shall indicate the activities to be undertaken by the company in areas or subject, Specified in Schedule VII,
(ii) Recommend the amount of expenditure to be incurred on the activities referred to in clause (i); and
(iii) Monitor the CSR policy of the company from time to time ;
> Meeting of the CSR Committee?
Since, the companies Act, 2013 is silent regarding the number of meetings and the manner in which the meetings are to be conducted in a year. Therefore, it is completly up to the company to conduct the meeting.
> Disclosures regarding CSR to be made/duties of the board?
(i) The board shall disclose the composition of CSR committee in the director’s report.
(ii) The board of every company shall after taking into account the recommendations made by the CSR committee, approve the CSR policy for the company and disclose contents of such policy into report and also place it on the company ‘s website, if any, and
(iii) Shall also ensure that the activities which are included in the CSR policy of the company are undertaken by the company;
(iv) If the Company fails to spend the 2% of the average net profit of the last 3 financial years or any part thereof, the company shall provide the reasons for not spending the amount in its Board’s Report.
> How to undertake the activities of CSR?
(A) As per the general circular No. 21/2014, it is classified that CSR activities should be undertaken by the companies in project /programme mode excluding activities undertaken in pursuance of its normal course of business.
(B) 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 in accordance with the CSR Rules, 2014.
> Expenses which shall not be considered as CSR expenditure?
(i) One-off event such as marathons/awards/charitable contribution/advertisement/sponsorship of TV programmes etc, would not be qualified as part of CSR expenditure.
(ii) Expenses incurred by companies for the fulfilment of any act/ statue of regulations (Such as labour laws, land acquisition act, etc.) shall not count as CSR expenditure under the Companies act 2013.
(iii) CSR projects or programs or activities or expenses that are undertaken or incurred for the benefit of the employees and companies only shall not be considered as CSR activities in accordance with the section 135 of the Companies Act 2013
(iv) Contribution made directly or indirectly to any political party under section 182 of the Companies Act, 2013
> Expenses which shall be considered as CSR expenditure?
|Schedule VII to Companies Act, 2013:|
|Activities which may be included by companies in their CSR Policies:
(i) CSR expenditure shall include all expenditure including contribution to corpus for projects or programs relating to CSR activities but shall not include any expenditure on an item which is neither in conformity nor in line with the activities which fall within the areas or subjects, specified in Schedule VII of the Act.
(ii) 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 last as part of the CSR expenditure.
(iii) 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 to as per section 135 of the act.
(iv) Contribution to corpus of a trust/society/section & companies etc. will qualify as CSR expenditure as long as (a) the trust/society/section 8 companies etc. is created exclusively for undertaking CSR activities OR (b) where the corpus is created exclusively for a purpose directly relatable to a subject lowered in schedule VII of the act.
> “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.
> Every company which ceases to be a company covered under section 135(1) of the Companies Act, 2013 for 3 consecutive financial years shall not be required to – (a) constitute a CSR Committee and (b) comply with provisions contained in sub-section (2) to (5) of the said section till such time it meets the criteria specified in sec. 135 (1).
> What are the various ways by which the board of a company may decide to undertake its CSR activities?
(A) The board of a company may decide to undertake its CSR activities by the CSR committee, through
(a) A company established under sec. 8 of the Companies Act, 2013 or a registered trust or a registered society, established by the company either singly or along with any other company ; or.
(b) A company established U/s. 8 of the act or a registered society, established by the CG or SG or any other entity established under an Act of a parliament or a state legislature.
> Can the Board of the company decides to undertake its CSR activities through a company established under sec. 8 of the Act or a registered trust or a registered society other than those specified in the aforementioned sub rule of the Companies Act, 2013?
(A) Yes, the Board of the company may decides to undertake its CSR activities through a company established under sec. 8 of the Act or a registered trust or a registered society other than those specified in the aforementioned sub rule of the Companies Act, 2013.
Provided the Company or trust or society shall have an established track record of 3 years in undertaking similar programs or projects and the company has specified the projects or programs to be undertaken, the modalities of utilization of funds of such projects and programs and the monitoring and reporting mechanism.
> Is CSR expenditure allowable expenditure?
No, the amount spend on the CSR activities mentioned in Schedule VII of the Companies Act, 2013 shall not be claimed as business expenditure or profession therefore, the expenditure is disallowable.
Provided, any expenditure of schedule VII of the Companies Act, 2013 is of the nature described in Sections 30 to 36 of the Income Tax Act, 1961 shall be allowed as deduction.
> Can the excess amount be carried forward to the succeeding years if the company spends in excess of the 2% of the average net profits of the three immediately preceding financial years?
No, any excess amount spent i.e. more than 2% of the average net profits shall not be carried forward to the subsequent years and adjusted against that year’s CSR expenditure.
> Can the unspent amount from out of the minimum required CSR expenditure be carried forward to the next year?
The Board is free to decide whether any unspent amount from out of the minimum required CSR expenditure is to be carried forward to the next year. However, the carried forward amount should be over and above the next year’s CSR allocation equivalent to at least 2% of the average net profit of the company of the immediately preceding 3 financial years.
> Is there any mechanism or any legal authority authorized by the Government to monitor the implementation of CSR by Companies under the provision of the Companies Act, 2013?
No, there is no such mechanism or any legal authority authorized by the Government to monitor the implementation of CSR by Companies under the provision of the Companies Act, 2013 since the main thrust and spirit of law is not to monitor but to generate conductive environment for enabling the corporate to conduct themselves in a socially responsible manner, while contributing towards human development goals of the country.
Furthermore, the existing legal provisions like mandatory disclosures, accountability of the CSR committee and the Board, provisions for audit of the accounts of the company, etc provide sufficient safeguards in this regard. Government has no role to play in monitoring implementation of CSr by companies.
Until now, if a company was unable to fully spend its CSR funds in a given year, it could carry the amount forward and spend it in the next fiscal, in addition to the money allotted for that year.
The CSR amendments introduced under the Act now require companies to deposit the unspent CSR funds into a fund prescribed under Schedule VII of the Act within the end of the fiscal year. This amount must be utilized within three years from the date of transfer, failing which the fund must be deposited in to one of the specified funds.
The new law prescribes for a monetary penalty as well as imprisonment in case of non-compliance. The penalty ranges from INR 50,000 to INR 25 lakh whereas the defaulting officer of the company may be liable to imprisonment for up to three years, or a fine up to INR 5 lakh or both.
The government, however, is reviewing these rules after the industry objected to the strict provisions, especially with respect to the jail terms for CSR violations, and is yet to operationalize them.
|Development Sectors||Amount Spent
|1||Clean Ganga Fund||5.47||32.82||24.37||2.11|
|2||Education, Differently Abled, Livelihood||3,188.09||4,942.55||5,511.29||3,486.76|
|4||Environment, Animal Welfare, Conservation Of Resources||853.99||972.34||1,311.15||1,006.36|
|5||Gender Equality , Women Empowerment , Old Age Homes , Reducing Inequalities||189.92||342.46||463.49||274.79|
|6||Health, Eradicating Hunger, Poverty And Malnutrition, Safe Drinking Water , Sanitation||2,525.92||4,607.51||3,640.19||1,773.53|
|7||Heritage Art And Culture||117.37||119.08||304.42||212.42|
|8||Other Sectors ( Technology Incubator And Benefits To Armed Forces And Admin Overheads )||9.50||37.91||60.17||21.44|
|9||Prime Minister’s National Relief Fund||228.18||217.23||157.58||60.40|
|11||Slum Area Development||101.14||14.30||51.46||4.70|
|12||Swachh Bharat Kosh||113.86||325.19||183.83||118.69|
|13||Any Other Fund||277.09||332.91||417.98||215.66|
|14||NEC/ Not Mentioned||1,338.39||1,065.22||388.95||0.00|
|Grand Total (in Cr.)||10,065.93||14,517.37||14,329.78||13,623.62|
Companies act, 2013
Companies CSR Rules, 2014