CSR Companies : Every company having net worth of rupees five hundred crore or more or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year – Section 135(1)

Meaning of Net Worth : The aggregate value of the paid-up share capital and all reserves created out of the profits and securities premium account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation. – Section 2(57)

Meaning of ‘any financial year’ : Any of the three preceding financial year – section 135 (1) & Rule 3(2) and also refer General Circular No. 21/2014, dated: 18.06.2014

CSR Committee : Every CSR company shall constitute a CSR Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director Section 135(1)

Disclosure in the Board’s Report : The Board’s report under sub-section (3) of section 134 shall disclose the composition of the CSR Committee – Section 135(2)

Applicability of the compliance : From April 2014

CSR Committee Responsibility : 1. Formulation of the CSR Policy as per schedule VII 2. Recommendation to the board of the amount to be spent 3. Monitoring of the CSR Policy time to time – Section 135(3)

Compliance by the Board:  Approval of the CSR Policy and disclosure of the same in its report and on the company’s website, if any, in such manner as may be prescribed; and ensure compliance of the CSR activities – Section 135 (4)

At least 2% of the Average Net Profits of the company to be spent : The Board of every company shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company as per section 198 made during the three immediately preceding financial years, in pursuance of its CSR Policy.- Section 135(5)

Preference to areas for CSR Expenditure :  Company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for CSR activities:

Failure on spending the requisite amount on CSR Activities : the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount – Section 135 (5)

Salary to regular CSR staff/employees rendering CSR services : Part of Administrative overheads should not exceed 5% of the total CSR expenditure in one financial year – Rule 4(6)

CSR Expenditure vs. Business Expenditure? : CSR Expenditure can not be deemed as business expenditure – Refer Finance Act 2014

Meaning of Net Profit : Net Profit Before Tax – Section 198

Interpretation of Schedule VII : Broader perspective

Tax Benefits under CSR : Specifically no for CSR expenditure as the spending on several activities already enjoy exemptions under different sections of the Income Tax Act, 1961 – Refer Finance Act 2014

Donation of Money to a trust/Society/Section 8 Company vs. CSR Expenditure : Donation can be treated as CSR expenditure this way as long as the corpus of the same is created exclusively for undertaking CSR activities.

Foreign Company vs. Reporting on CSR activity : Reporting is to be done in the form of an annexure with Balance Sheet filed under section 381(1)(b)

Message & Conclusion

If there is a provision in the Act for service of society by corporates,

Similarly there should be provision for service of society by Non-corporates.

Corporates required u/s 135 to serve the society mandatorily,

Non – Corporates required u/s of their present life to serve the society voluntarily

Preference is given u/s 135 to serve locally first,

As the all round development 1st of the local area is must.

Giving such preferences our whole country would gradually be served,

Thus stopping the brain drain our Bharat certainly would automatically be developed.

It has been rightly said :-

Desh Hame Deta Hai Sab Kuch

Ham Bhee To Kuch Dena Seekhe.

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  1. Debjani says:

    Such an informative and well written article. It’s a great skill to put everything so nicely and in such a well organized manner. This article shows your in-depth knowledge of the regarding issue and also your goodwill to share it with all of us 🙂

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June 2021