Procedure For Implementation Of Corporate Social Responsibility Projects Under Companies Act, 2013
Summary: Article outlines the Corporate Social Responsibility (CSR) framework under the Companies Act, 2013, covering the governing provisions, applicability, meaning, compliance procedure and reporting requirements. It states that CSR provisions apply to companies, including holding, subsidiary and foreign companies, meeting specified thresholds of net worth of INR 500 crore or more, turnover of INR 1000 crore or more, or net profit of INR 5 crore or more during the immediately preceding financial year. It explains activities that are not treated as CSR, including normal business activities, activities outside India (subject to specified exceptions), political contributions, employee-only benefits, sponsorships for marketing and activities undertaken to fulfil other statutory obligations. The content further sets out the compliance process, including constitution of the CSR Committee, formulation of the CSR Policy and annual action plan, spending at least 2% of average net profits, treatment of unspent CSR amounts, set-off of excess CSR spending, impact assessment, certification by the Chief Financial Officer or person responsible for financial management, disclosures in the Board’s Report and company website, and reporting through Form CSR-2 with the applicable AOC forms on the MCA V3 portal. It also notes that private companies are exempt only from appointing an independent director on the CSR Committee.
A. Governing provisions of Companies Act, 2013:
| Section 135 of the Companies Act, 2013 read with Sections 149, 198 and 381 of the Companies Act, 2013
Companies (Corporate Social Responsibility) Rules, 2014 read with Rule 9 of Companies (Accounts) Rules, 2014 Schedule VII of the Companies Act, 2013 |
B. Applicability of CSR:
| Every company including its holding or subsidiary, and a foreign company exceeding the following thresholds must comply with the provisions of CSR:
Net worth of INR 500 crore or more, or Turnover of INR 1000 crore or more, or Net profit of INR 5 crore or more during 3 the immediately preceding financial year. “Net Profit” means the net profit of a company as per section 198 and in case of a foreign company net profit of a company as per section 381 of the Act. |
C. Meaning of CSR:
| CSR means activities undertaken by a company as per its statutory obligation under Section 135 and CSR Rules.
> Activities not treated as CSR: 1. Activities done in the normal course of business (Exception: COVID-19 R&D during FY 2020-21 to 2022-23, subject to conditions) 2. Activities undertaken outside India (Except training of Indian sports personnel representing India/State/UT) 3. Contribution to political parties (Section 182) 4. Activities benefiting only company employees 5. Sponsorship activities for marketing benefit 6. Activities done to fulfil any other statutory obligation under any law. |
D. Procedure:
| Sr. No. | Steps |
| 1. | Constitution of CSR Committee:
Every company meeting the thresholds shall constitute a CSR Committee consisting of 3 or more directors, out of which at least 1 director shall be an independent director. A company which is not required to appoint an independent director shall have its CSR Committee without such director. Private company having only two directors on its Board shall constitute its CSR Committee with two such directors. Foreign company shall constitute its CSR Committee with at least two persons out of which one person shall be as specified under clause (d) of sub-section (1) of section 380 of the Act and another person shall be nominated by the foreign company. Where the amount to be spent by a company does not exceed INR 50 Lakh company need not to constituted Committee, such obligation is performed by Board itself. |
| 2. | CSR Committee Meeting:
The CSR Committee shall- formulate, recommend and monitor a CSR Policy recommend the amount of expenditure to be incurred formulate and recommend to the Board, an annual action plan |
| 3. | Amount of expenditure to be incurred on CSR activities:
At least 2% of the average net profits of the company made during the 3 immediately preceding financial years, or Where company has not completed the period of 3 financial years during such immediately preceding financial years, in pursuance of its CSR Policy. |
| 4 | Board Meeting:
The Board shall- consider and approve CSR Policy consider and approve the annual action plan and any modifications recommended by CSR Committee satisfy itself that the amounts spent on CSR Activities have been utilized for the purposes and in the manner as approved by it consider and approve the excess amount spent and claim as set-off over a period immediate succeeding 3 financial years open an unspent CSR account for parking the funds not spent during a financial year |
| 5. | Modalities for unspent CSR amount:
Ongoing Project: Amount allocated towards ongoing projects but unspent as on the end of the financial year must be transferred to an unspent account within 30 days of the end of the financial year. This amount should be utilized within a period of 3 financial years from the date of such transfer. When the Unspent CSR Account is not fully exhausted within a period of 3 financial years the amount lying in the unspent CSR Account should be transferred to a Fund specified in Schedule VII, within a period of 30 days from the date of completion of the 3rd financial year. Other than ongoing project: Unspent amount pertaining to other than ongoing projects should be transferred to a fund specified in Schedule VII within 6 months of end of financial year. |
| 6. | Set off of surplus CSR Spending:
An amount spent in excess of mandatory CSR expenditure may be set off in the immediate succeeding 3 financial years. |
| 7. | Impact Assessment of CSR Projects:
A Company having average CSR obligation of INR 10 crore or more in the 3 immediately preceding financial years shall undertake impact assessment, through an independent agency of their CSR projects having outlays of INR 1 crore or more, which completed 1 year before undertaking the impact study. |
| 8. | Certification:
The Chief Financial Officer or the person responsible for financial management shall certify that the amounts disbursed have been utilized for the purposes and in the manner as approved. |
| 9. | Disclosure in Board’s Report and on the website of the Company, if any:
Details of the CSR undertaken shall be disclosed in the Board Report. In case of unspent amount the Board shall state reasons for not spending. The impact assessment reports, if any annexed to the annual report on CSR. The composition of the CSR Committee, CSR Policy and the Projects, approved by the Board and impact assessment reports, if any, shall be placed on the website of the Company. |
| 10. | Reporting:
The details of the CSR expenditure incurred during a financial year needs to be reported to MCA vide Form CSR 2 which forms part of Form AOC 4/ AOC 4 CFS/ AOC 4 XBRL/ AOC 4 NBFC (IND AS) required to be filed on the MCA V3 portal. |
E. Steps not applicable to Private Companies:
| There are no specific exemptions applicable to the private limited companies except the constitution of CSR Committee without the independent directors. |
******
*This document is for educational purposes only and does not constitute legal advice.
Author: M/s Ronak Jhuthawat & Co, Practicing Company secretary Call: +91 98874 22212 | Email: compliancerjac@gmail.com
