The concept of Corporate Social Responsibility was introduced in India within legal framework by the Companies Act, 2013.
As per section 135(1) of the Companies Act 2013, the CSR provision is applicable to companies which fulfills any of the following criteria during the immediately preceding financial year:-
Companies having net worth of rupees five hundred crore or more, or
Companies having turnover of rupees one thousand crore or more, or
Companies having a net profit of rupees five crore or more.
Thus, the CSR Rules specify that a company which does not satisfy the specified criteria for a consecutive period of three financial years is not required to comply with the CSR obligations, implying that a company not satisfying any of the specified criteria in a subsequent financial year would still need to undertake CSR activities unless it ceases to satisfy the specified criteria for a continuous period of three years.
Section 135 of the Act requires the CSR Committee to consist of at least three directors, including at least one independent director.
Where a company is not required to appoint an independent director under sub-section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two or more directors.
Further, where a private company has only two directors on the Board, the CSR Committee can be constituted with these two directors.
Rule 3 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 specify that every company which ceases to be a company covered under section 135 as per the limits specified thereunder for three consecutive financial years shall not be required to constitute a CSR Committee and comply with the provision of section 135, till such time that it meets the criteria specified.
The functions of CSR Committee
1. To formulate and recommend to the Board, a CSR Policy which would indicate the activities to be undertaken in areas or subject, specified in Schedule VII of the Act.
2. To recommend the amount of the expenditure to be incurred on the activities undertaken in pursuance of the CSR policy.
3. To institute a transparent monitoring mechanism for implementation of the CSR projects or programs or activities undertaken by the company.
4. To monitor the CSR policy of the company time to time.
1. The CSR activities shall be undertaken by the company, as per its stated CSR Policy, as projects or programs or activities (either new or ongoing), excluding activities undertaken in pursuance of its normal course of business;
2. The CSR projects or programs or activities undertaken in India only shall amount to CSR Expenditure
3. The CSR projects or programs or activities that benefit only the employees of the company and their families shall not be considered as CSR activities in accordance with section 135 of the Act.
4. Contribution of any amount directly or indirectly to any political party under section 182 of the Act, shall not be considered as CSR activity.
5. Companies may build CSR capacities of their own personnel as well as those of their implementing agencies through institutions with established track records of at least three financial years but such expenditure, including expenditure on administrative overheads, shall not exceed five percent of total CSR expenditure of the company in one financial year. Contribution of any amount directly or indirectly to any political party under section 182 of the Act, shall not be considered as CSR activity.
List of CSR Activities
Some activities are specified in Schedule VII as the activities which may be included by companies in their Corporate Social Responsibility Policies.
These are activities related 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, Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans, and their dependents including widows;
(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 Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES 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) (a) Contribution to incubators or research and development projects in the field of science, technology, engineering and medicine, funded by the Central Government or State Government or Public Sector Undertaking or any agency of the Central Government or State Government; and
(b) Contributions to public funded Universities; Indian Institute of Technology (IITs); National Laboratories and autonomous bodies established under Department of Atomic Energy (DAE); Department of Biotechnology (DBT); Department of Science and Technology (DST); Department of Pharmaceuticals; Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH); Ministry of Electronics and Information Technology and other bodies, namely Defense Research and Development Organisation (DRDO); Indian Council of Agricultural Research (ICAR); Indian Council of Medical Research (ICMR) and Council of Scientific and Industrial Research (CSIR), engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs).
(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.
1. 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 made during the three immediately 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 in pursuance of its Corporate Social Responsibility Policy. This amount will be CSR expenditure.
2. If the company fails to spend such amount, the Board shall, in its report specify the reasons for not spending the amount.
3. Any amount remaining unspent under sub-section (5) of Section 135 of Companies Act, 2013, pursuant to any ongoing project undertaken by a company in pursuance of its Corporate Social Responsibility Policy, shall be transferred by the company within a period of thirty days from the end of the financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account and such amount shall be spent by the company towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer.
4. Expenditure incurred on specified activities that are carried out in India only will qualify as CSR expenditure. Such expenditure includes contribution to the corpus or on projects or programs relating to CSR activities.
5. Any expenditure on an item not in conformity or not in line with activities which fall within the areas or subjects, specified in Schedule VII of the Act shall not be permissible.
6. Any surplus arising out of CSR activities will not be considered as business profit for the spending company.
7. 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 so as per section 135 of the Act.
It is mandatory for companies to disclose in Board’s Report, an annual report on CSR. The report of the Board of Directors attached to the financial statements of the Company would also need to include an annual report on the CSR activities of the company in the format prescribed containing following particulars –
1. A brief outline of the company’s CSR policy;
2. The Composition of the CSR Committee;
3. Average net proflt of the company for last three financial year;
4. Prescribed CSR Expenditure;
5. Details of CSR spent during the financial year;
6. In case the company has failed to spend the two per cent of the average net profit of the last three financial years or any part thereof, the company shall provide the reasons for not spending the amount in its Board report;
7. A responsibility statement of the CSR Committee that the implementation and monitoring of CSR Policy, is in compliance with CSR objectives and Policy of the company.
The Government has launched a National CSR Portal at https://www.csr.gov.in/. The National Corporate Social Responsibility Data Portal is an initiative by Ministry of Corporate Affairs, Government of India to establish a platform to disseminate Corporate Social Responsibility related data and information filed by the companies registered with it. National CSR Portal has all data related to CSR Activities in India