Namrata Gupta

Applicability

As per Companies Act 2013 all Indian Companies shall comply with  Corporate Social Responsibility requirements w.e.f 01.04.2014.

All companies havinga net worth of Rs. five hundred Crore or more, or turnover of Rs. one thousand crore or more or a net profit of rupees five crore or more during a financial yearshall constitute a Corporate Social Responsibility (CSR) Committee of the Board consisting of three or more directors out of which at least one should be a independent director. However for unlisted public companies and private companies there is no requirement of independent director.

Quantum

The Board shall ensure that the company spends at least 2% of the average net profits of the company made during the three immediately preceding financial years in pursuance of CSR policy.

Net Profit for the purpose of this section:

For the purpose of this sections profit shall be computed as per S.198 of the Companies Act 2013.

 Net profit shall include:

  • Grants and subsidies received from Government or any other authority authorized by Government.

Net profit shall exclude:

  • Profits by way of premium on shares or debentures issued by the company.
  • Profit on sale of forfeited share.
  • Profits of capital nature ( like sale of fixed assets, immovable property or undertaking)
  • Any amount arising on account of revaluation of asset or liability.

After computing the Net profits as above the following shall not be deducted:

  • Income tax or super tax payable under Income Tax, 1961.
  • Any compensation damage or payment made voluntarily.
  • Loss of capital nature.
  • Loss on revaluation of asset.

Subject to the above all other expenses incurred in the ordinary course of business like depreciation, interest on loans, interest on debentures, director’s remuneration, Bad debts, insurance, bonus, salaries, etc shall be excluded from the Net profit.

Responsibility of CSR committee

—  Formulate and recommend to the Board a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII.

—  Recommend the amount of expenditure to be incurred on the activities.

—  Institute a transparent monitoring mechanism for implementation of the CSR projects or programs or activities undertaken by the company.

Board of Director’s responsibility

—  Approve the CSR policy of the company.

—  Disclose the contents of the policy in its report and on the company’s website.

—  Ensure that the activities as mentioned in the CSR policy are undertaken by the company.

—  Ensure that the company spends the amount as specified on the CSR activities.

—  If the company is unable to spend the stated amount then the same should be disclosed in the director’s report along with the reasons.

CSR activities specified in Schedule VII

—  Eradicating hunger, poverty, malnutrition, promoting preventive health care and sanitation and making available safe drinking water;

—  Promoting education, including special education and employment enhancing  vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects;

—  Promoting gender equality,  empowering women, setting up homes and hostels for women and orphans, 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;

—  Ensuring environmental sustainability, ecological balance, protection of flora and  fauna, animal welfare, agro forestry,  conservation of natural resources and maintaining quality of soil, air and water;

—  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;

—  Measures for the benefit of armed forces veterans, war widows and their dependents;

—  Training to promote rural sports,  nationally recognized sports, Paralympics sports and Olympic sports;

—  Contribution to Prime Minister’s 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 Schedule Tribes, other backward classes, minorities and women;

—  Contributions or funds  provided to technological incubators located within academic institutions which are approved by the Central Government;

—  Rural development projects.

Non- Inclusions

—  Contribution of any amount whether directly or indirectly to any political party shall not be considered a CSR activity.

—  CSR projects or programs that benefit only the employees of the company or their families shall not be considered a CSR activity.

—  The Company may build CSR capacities of their own personnel as well as those of their implementing agencies but such expenditure shall not exceed 5% of total CSR expenditure of the company in one financial year.

—  The CSR projects or activities undertaken in India only shall qualify as CSR expenditure.

—  The Company shall give preference to the local area and areas around where it operates for spending the amount.

—  Activities undertaken in the normal course of business shall be excluded.

How to undertake CSR Activity

The Board may decide to undertake its approved CSR activities by :-

—  Forming a registered trust or

—  Forming a registered society or

—  Forming a company, whether holding or subsidiary or associate or

—  Through a existing trust, society or company which has a track record of three years in undertaking similar programs or projects.

Cessation

Every company which ceases to be a company covered u/s 135(1) of the Act for three consecutive financial years shall not be required to :

  • Constitute a CSR committee
  • Comply with the provisions of S.135 of the Act

Till such time it meets the criteria specified in S.135 (1).

(CA Namrata Gupta, Jaipur, Email – Namrata.airen@gmail.com)

More Under Company Law

Posted Under

Category : Company Law (3466)
Type : Articles (14822)
Tags : Companies Act (1934) CSR (73)

0 responses to “Section 135 – Corporate Social Responsibility”

  1. Dhiraj says:

    Do the company can avail deduction in respect of such sum spended in CSR

  2. Megha says:

    Can you please clarify the following:

    “Subject to the above all other expenses incurred in the ordinary course of business like depreciation, interest on loans, interest on debentures, director’s remuneration, Bad debts, insurance, bonus, salaries, etc shall be excluded from the Net profit.”

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