Corporate Social Responsibility (hereinafter referred to as “CSR”) is a legal obligation of Companies which mandates them to engage in activities that contribute to the social, environmental, and economic development of the Country.
Section 135 of the Companies Act, 2013 read with Companies (Accounts) Rules, 2014 and Companies (Corporate Social Responsibility Policy) Rules, 2014 deals with the provision pertaining to CSR. This article explains different dimensions of CSR related to following:
1. Applicability:
Every Company having in the immediately preceding Financial Year:
i) Net Worth: 500 Crores or More; or
ii) Turnover:1000 Crores or More; or
iii) Net Profit: 5 Crores or more.
2. CSR Contribution:
Companies on which CSR provisions are applicable shall contribute at least 2% of its average net profit of immediately three preceding Financial Years on CSR Projects.
3. CSR Committee:
Every Company triggering any one of the above limits, shall constitute a CSR Committee with at least one Independent Director.
Exception to above: If a Company is not required to appoint an Independent Director, it shall have its CSR Committee with two or more Directors.
If the CSR Obligation of a Company is less than 50 Lakhs, it is not required to constitute the CSR Committee.
However, if the Company has any amount in Unspent CSR Account, it is required to constitute the CSR Committee even if the CSR Obligation is less than 50 Lakhs.
4. CSR Policy:
CSR Policy means a statement containing the approach and direction given by the Board of Directors of the Company, considering the recommendations of its CSR Committee, and includes guiding principles for selection, implementation and monitoring of activities as well as formulation of the Annual Action Plan.
5. Unspent CSR Account:
It is a Bank Account which a Company needs to open in any Scheduled Bank which is to be called Unspent CSR Account.
6. Timeline to spend CSR:
Companies should spend its CSR contribution within one Financial Year.
- Ongoing Project: means a Project undertaken by a Company in fulfilment of its CSR obligation having duration of maximum three years excluding the financial year in which it was commenced.
CSR in case of Ongoing Project: Companies should meet its CSR obligation within one Financial Year. Unspent CSR obligation, if any, shall be transferred in unspent CSR Account within 30 days from the end of the Financial Year. The Companies shall then spend its unspent CSR Obligation within 3 Financial Years from the date of such transfer of Unspent CSR amount to the unspent CSR Account.
Any amount still lying unspent in the UNSPENT CSR ACCOUNT after the end of third Financial Year shall be transferred by the Company within thirty days from the end of third Financial Year to a FUND specified under Schedule VII of the Companies Act, 2013.
Illustration: We are sitting in the Financial Year 2024-25 and our accounts for the Financial Year 2023-24 has finalized* which has triggered any one of the above limits in the immediately preceding F.Y. 2023-24, then it shall spend its required CSR contribution (2% of average net profit of immediately three preceding Financial Years i.e., 2023-24, 2022-23 and 2021-22) by the end of the F.Y. 2024-25.
Unspent amount, if any, shall be transferred to UNSPENT CSR ACCOUNT within 30 days i.e., on or before, the April 30, 2025 and the Company shall meet its CSR Obligations within 3 Financial Years i.e., 2025-26, 2026-27 and 2027-28.
Any amount lying unspent in the UNSPENT CSR ACCOUNT after the end of the Financial Year 2027-28 shall be transferred to a FUND specified under Schedule VII of the Companies Act, 2013 within thirty days from end of third Financial Year i.e., on or before April 30, 2028.
*Alternatively, Company can also allocate an CSR budget on the basis of provisional financials of the Company and can spend accordingly.
- CSR in case of Other than Ongoing Project: Except the Ongoing Project, Companies triggering any one of the above limits in the immediate Financial Year, shall spend its CSR contribution within next 1 (one) Financial Year.
Illustration: We are sitting in the Financial Year 2024-25 and our accounts for the Financial Year 2023-24 has finalized* which has triggered any one of the above limits in the immediately preceding F.Y. 2023-24, then it shall spend its required CSR contribution (2% of average net profit of immediately three preceding Financial Years i.e., 2023-24, 2022-23 and 2021-22) by the end of the F.Y. 2024-25.
Unspent amount, if any, shall be transferred to a Fund specified under Schedule VII of the Companies Act, 2013 within 6 months from end of Financial Year i.e., on or before, the September 30, 2025.
Company shall also disclose reasons of not spending CSR obligations in its Board Report.
*Alternatively, before finalization of accounts, Company can allocate an CSR budget on the basis of provisional financials of the Company and can spend accordingly.
7. CSR Activities:
The Companies shall spend its CSR obligations in areas as specified in Schedule VII.
8. Excess CSR Spent:
Company may set off excess amount against the CSR requirement to spend for immediate succeeding three financial years.
9. Website Disclosures:
The Companies shall disclose on its website, the following:
- Composition of CSR Committee;
- CSR Policy; and
- CSR Projects approved by the Board, if any.
10. Penal Provisions:
Company who is in default in transferring the unspent CSR amount to the Fund specified in Schedule VII or the Unspent CSR Account, shall be liable to a penalty of twice the amount required to be transferred by the company to such Fund specified in Schedule VII or the Unspent CSR Account, as the case may be, or one crore rupees, whichever is less.
Every Officer who is in default, shall be liable to a penalty of one-tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent CSR Account, as the case may be, or two lakh rupees, whichever is less.
Author Bio
