Summary: Corporate Social Responsibility (CSR) is a voluntary initiative where companies contribute a portion of their profits to social welfare, environmental sustainability, education, and healthcare. Governed by Section 135 of the Companies Act, 2013, and Companies (CSR Policy) Rules, 2014, CSR is mandatory for companies meeting specific financial thresholds: net worth above ₹500 crore, turnover over ₹1000 crore, or net profit over ₹5 crore. Companies must contribute at least 2% of their average net profits from the last three financial years towards CSR activities. These activities range from poverty eradication, education, and healthcare to environmental protection, rural development, and disaster management. CSR not only enhances a company’s public image but also fosters goodwill within communities. Non-compliance leads to penalties, with companies required to transfer unspent CSR funds to specific accounts. The Board of Directors must approve CSR policies and report CSR expenditures annually. Additionally, companies must form a CSR committee if the spent amount exceeds ₹50 lakh. Failure to comply with CSR provisions can result in fines up to ₹1 crore for the company and ₹2 lakh for responsible officers.
Today, we will discuss on the very interesting topic, that every corporate needed to be considered as the aspects and points considered for the benefits of the company and the society.
The topic is about the corporate social responsibility (CSR) means the voluntary contribution made by the companies for the better development of the society and as a helping hand, helps the society for benefits the current and future generations.
In this concept, the corporates contribute the part of amount from the profit to the welfares, environmental, education, hospitality, infrastructures and other aspects that giving a relief or assistance in living of life.
Now, as per considered the provisions specified under section 135 of the companies act, 2013 read with the Companies (CSR Policy) Rules, 2014 along with the activities specified under Schedule-VII of the act, defining the aspects related to the CSR policies, covered expenditures, and transfer of the funds and their usages.
Now after the definition part the remain part of the article covered under the points needed to be recommended and giving a brief coverage to the reader for understanding the various points covered under the acts and amendments specified thereafter.
CSR applicability in India:
The requirements to contribute to the development for the society is the duty of every individual and corporates, but the concept of the CSR is applicable for the specified category, after it reaches, required to comply with the provisions of the act and rules specified.
The provisions of CSR applies to every company, who fulfills any of the following conditions in the preceding financial year:
1. Net worth of more than Rs. 500 crore,
2. Turnover of more than Rs. 1000 crore
3. Net profit of above Rs. 5 crore.
If the company defines in the any of the above limits specified, so the Board of Directors requires to comply with the provisions of section 135 of the act by contributing the 2% of its average net profits made during the immediately preceding three financial years as per its CSR policy. If the company has not completed three financial years since its incorporation, it must spend 2% of its average net profits made during the immediately preceding financial years as per its CSR policy.
Now what are the benefits, the corporates received after contributing to the benefits of the society? So the related benefits received to the corporates not only limited to, are:
1. CSR improves the public image of the company for the efforts made to the benefits of the society,
2. It helps the corporates, to stand in the competitive market for making company special and valuable toward its duties and responsibility.
After the applicability and taking into the mind the benefits, what company receives after the compliance of corporate social responsibility, there are several points that board of the directors needed to be considered for safeguarding from the defaults and penalties levied.
Several points for considering the compliance and regulatory requirements are as specified:
1. Approving CSR policy in the board meeting: The first step is to formulating a CSR policy for systematic contribution of expenditures in the specified activities. It also useful to capture the deficiencies, decentralizing the duties and accounting aspects and also for reporting to the society.
2. Calculation of the amount from profit for CSR expenditure: The amount of the 2% of the net profit are calculated on the basis of the section 198 of the companies act, 2013 defines the managerial remuneration.
3. Selection of activities as specified in Schedule-VII: The companies should considered the activities from the Schedule- VII of the companies act, 2013 or related activities to comply with the provisions specified in the act.
4. Disclosure of CSR policy, expenditure and other matters in the board report: The board of directors should disclose the matter related to the CSR policy, expenditure and its usages in the board report for compliance of the provisions and also of aware about its responsibilities.
If in any case, the company are unable or fail to spent the specified amount in the CSR activities in the time period decided, so the remain amount needed to be transferred to the unspent CSR account within the period of six months from the end of the financial year, where it uses in the following objectives like-
1. Prime Minister’s National Relief Fund,
2. Other funds initiated for the economic development, relief and welfare of the society,
3. Contributions to the schools, universities, research and women awareness and development of the backward society, providing essential food supply etc.
In case of the unspent amount relating to an ongoing project under the company’s CSR policy, the company will transfer the unspent amount to an exclusive account to be opened by a company, known as ‘Unspent Corporate Social Responsibility Account’, in any scheduled bank within 30 days from the end of the financial year.
The company must use the funds in the ‘Unspent Corporate Social Responsibility Account’ towards its obligations under the CSR policy within a period of three financial years from the date of the transfer.
| Sr. No |
CSR Activities |
| 1 | Eradicating poverty, hunger and malnutrition, promoting health care which includes sanitation and preventinve health care, contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water. |
| 2 | Improvement in education which includes special education and employment strengthening vocation skills among children, women, elderly and the differently-abled and livelihood enhancement projects. |
| 3 | Improving gender equality, setting up homes and hostels for women and orphans, empowring women, 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. |
| 4 | Safeguarding environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining a quality of soil, air and water which also includes a contribution for rejuvenation of river Ganga. |
| 5 | 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 arts and handicrafts. |
| 6 | 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. |
| 7 | Training to stimulate rural sports, nationally recognized sports, Paralympic sports and Olympic sports. |
| 8 | Contribution to the Prime Minister’s National Relief Fund, Prime Minister’s Central Assistance and Relief in Emergency Situations Fund (PM CARES Fund) or any other fund set up by the Central Government for socio-economic development providing relief and welfare of the Scheduled Castes, the Scheduled and backward classes, other backward classes, minorities and women. |
| 9 | Contribution to incubators or research and development projects in the field of science, technology, engineering and medicine, funded by the Central Government, State Government, Public Sector Undertaking or any agency of the Central Government or State Government. |
| 10 | Contributions to public funded Universities, IITs, National Laboratories and autonomous bodies established under DAE, DBT, DST, Department of Pharmaceuticals, Ministry of AYUSH, Ministry of Electronics and Information Technology and other bodies, namely DRDO, ICAR, ICMR and CSIR, engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs). |
| 11 | Rural development projects. |
| 12 | Slum area development. Slum area means 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. |
| 13 | Disaster management, including relief, rehabilitation and reconstruction activities. |
Also the company need to constitute a CSR committee, consist of three or more directors out of which one is an Independent Director, if the spent amount exceeds Rs. 50 Lacs.
Fines and Penalties in case of default for non-compliances:
In case a company fails to comply with the provisions relating to CSR spending, transferring and utilizing the unspent amount, the company will be punishable with a penalty of Rs.1 crore or twice the amount required to be transferred by the company to the CSR fund specified in Schedule VII of the Act or the Unspent Corporate Social Responsibility Account, whichever is less.
Further, every officer of such company who defaults in compliance will be liable to pay Rs.2 lakh or one-tenth of the amount required to be transferred by the company to CSR fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, whichever is less.
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