Mansi Goel

Meaning: Corporate social responsibility may be referred to as “corporate citizenship” and can involve incurring short-term costs that do not provide an immediate financial benefit to the company, but instead promote positive social and environmental change. CSR IS NOT A CHARITY OR A MERE DONATION.

APPLICABILITY u/s 135(1):

With effect from April 1, 2014, every company, private limited or public limited, which either has a

1. Net worth of Rs 500 crore or,

2. Turnover of Rs 1,000 crore or,

3. Net profit of Rs 5 crore.

needs to spend at least 2% of its average net profit for the immediately preceding three financial years on corporate social responsibility activities.

The word “companies” here also includes foreign companies having branch or project offices in India.

CSR activities must be with respect to any of the activities mention in schedule VII which are as follows:

  • Eradicating hunger, poverty and malnutrition
  • Promoting preventive healthcare.
  • Promoting education and promoting gender equality, setting up homes for women, orphans and the senior citizens.
  • Contributions or funds provided to technology incubators located within academic institutions approved by the Central Government and rural development projects.
  • Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare.
  • Contribution to the Prime Ministers’ National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women.

NOTE: contribution made to any political party will not be covered under CSR activities.

Computation:

The net worth, turnover and profits are computed under section 198 of Companies act 2013 which is given below:

Net profit after tax
Add: profit on sale of immovable property (original cost – WDV)
Less: Premium on sale of forfeited shares, debentures
Profit on sale of immovable property (sale consideration – original cost )
Surplus in p/l on measurement of Assets   & Liabilities
Less: Expenses Allowed

Usual working charges including

Ø  Director’s Remuneration

Ø  Bonus or commission paid to staff

Ø  Tax on abnormal profits

Ø  Tax on business profits imposed for special reasons

Ø  Interest on debentures, loans

Ø  Repair expenses other than capital expenditure

Ø  Contribution to charitable trusts u/s 181

Ø  Depreciation

Ø  Prior Period items

Ø  Legal liability for compensation

Ø  Insurance expenses

Add: Expenses Disallowed

Ø  Income tax

Ø  Compensation made voluntarily

Ø  Capital loss on sale of undertaking (not being losses on sale of assets)

 Brief About CSR Committee:

To fulfill the obligations of CSR, a CSR committee of the board needs to be constituted. As per section 135 of 2013 act CSR committee should comprise of at least 3 Directors which also includes an independent director. However, Private Company and unlisted public company and foreign companies need to have a minimum of 2 members.

Reporting for CSR:

Rule 8 of the CSR Rules provides that the companies upon which the CSR Rules are applicable shall be required to incorporate in its Board’s report an annual report on CSR containing the following particulars:

  • A brief outline of the company’s CSR Policy, including overview of projects or programs proposed to be undertaken
  • reference to the web-link to the CSR policy and projects or programs
  • The composition of the CSR Committee
  • Average net profit of the company for last three financial years
  • Prescribed CSR Expenditure (2% of the amount of the net profit for the last 3 financial years)
  • Details of CSR Spent during the financial year
  • In case the company has failed to spend the 2% of the average net profit of the last three financial years, reasons thereof.

What If A Company Ceases To Be Covered Under Section 135?

According to Rule 3(2) of the Corporate Social Responsibility Rules, 2014, if a company, for 3 consecutive years, ceases to be covered under the ambit of section 135(1), it shall not be required to fulfill the conditions relating to the constitution of CSR Committee and other related provisions.

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Category : Company Law (3705)
Type : Articles (16223)
Tags : Companies Act (2170) Companies Act 2013 (1943)

0 responses to “A quick guide to Corporate Social Responsibility (CSR) Provisions”

  1. B.V.S.Prakash says:

    If a company decides to set up rooftop solar project for captive consumption and pays for the energy generated and consumed – is it CSR u/s135

  2. giri says:

    tax debited to p&l account is to be added back to profit

  3. Siddharth Mahajan says:

    Also expenditure incurred for CSR outside India and expenditure incurred for welfare of employees and thierfamily shall not be considered under CSR.
    ALSO Net profit (for purpose of applicability i.e 5cr or more) shall not include profit of foreign branch and dividend for companies covered under this section.
    And as per MCA circular conditions for applicability of this section to companies shall be seen in any of the 3 preceeding years.

  4. mansi says:

    it does not mean provision.It means actual income tax paid or voluntarily compensation paid

  5. Ketan Gupta says:

    What does Income Tax means under the Head Expenses Disallowed. Whether it means paid or provision

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