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:
NOTE: contribution made to any political party will not be covered under CSR activities.
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|
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 Prior Period items
Ø Legal liability for compensation
Ø Insurance expenses
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:
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.