Summary: Corporate Social Responsibility (CSR) in India, governed by Section 135 of the Companies Act, 2013 and associated rules, defines a company’s social contribution. It applies to companies with a net worth of ₹500 crore or more, a turnover of ₹1000 crore or more, or a net profit of ₹5 crore or more, based on any single criterion. Activities excluded from CSR include those in the normal course of business, those undertaken outside India (with exceptions for training Indian sports personnel), political contributions, employee benefits, marketing activities for products/services, or fulfilling other statutory obligations. The ‘net profit’ for CSR calculation, as per Section 198, is derived from Profit Before Tax (PBT). This calculation allows for the deduction of usual working charges, director remuneration, bonuses, specific taxes, interest payments, non-capital repairs, and depreciation. Conversely, certain items like capital profits, share premium, forfeited share profits, and income tax are disallowed. Importantly, profits from overseas branches and dividends from other Indian companies are excluded from this net profit. The CSR obligation is 2% of the average net profit of the preceding three financial years, potentially adjusted for CSR project surpluses or set-off amounts. For determining CSR applicability, Profit After Tax (PAT) is considered, while for calculating the 2% obligation, Profit Before Tax (PBT) is used.
CSR ( CORPORATE SOCIAL RESPONSIBILITY)
Pursuant to Section 135 read with Companies (Corporate Social Responsibility Policy) Rules, 2014.
Along with schedule VII of the Act
Meaning :- Contribution to the society
Applicability: –
Every company having :-
- Net worth of 500 cr or more ,
- Turnover of 1000 cr or more ,
- Net profit of 5 crore or more
(shall be applicable if company meet any threshold
What excludes from CSR activities :-
1- Activities undertaken in normal course of B/s
2- Activities undertaken outside India except for training of Indian sports personnel representing any State or Union territory at national or international level
3- Contribution to any political party
4- Benefiting Employee
5- For marketing of product or services
6- Activity carried out for fulfilling statutory obligation.
| S.NO | PROFIT BEFORE TAX | xxx |
| Credit allowed (Add) |
subsidies received from any Government , Public authority , | xxx |
| Credit disallowed (Less) |
|
Xxx |
| Expenses allowed (sub section 4 ) (Less) |
|
XXX |
| Expenses Disallowed (Add) |
|
XXX |
| NET PROFIT AS PER 198 | XXXX |
⇓
PROFIT AS PER 198
⇓
EXCLUDING:
• any profit arising from any overseas branch or branches of the company,
• any divide received from other companies in india
| CSR Obligation | Calculation of CSR obligation
|
2% of (3 year profit) /3 |
| Add:- | Surplus arising out of the CSR projects | XXX |
| Less:- | Amount required to be set off for the financial year | XXX |
| Total CSR obligation | XXX |
LETS DISCUSS !!!
1- While calculating profit under 198 , Do we include Director remuneration ??
= I have seen various professional adding back the director remuneration while calculating net profit for the purpose of CSR expenditure .
Pl note , director remuneration is added back only for the purpose of ascertaining profit to be determined for managerial remuneration and not for determining CSR profit (refer 197)
Hence, managerial remuneration is allowed to be deducted from net profit.
2- Do we consider Profit before tax or Profit after tax ?
= As per the FAQs of MCA …. Profit before tax shall be taken for the purpose of calculating CSR profit
3- Do we consider profit before tax or profit after tax for determining applicability of CSR?
= Profit after tax is to be considered while determining the applicability of CSR
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