Introduction: Corporate Social Responsibility (CSR) has become an integral aspect of corporate governance, reflecting a company’s commitment to societal well-being beyond profit generation. Enshrined in Section 135 of the Companies Act, 2013, CSR compliance mandates that eligible businesses allocate a percentage of their profits towards specified social and environmental initiatives. Understanding CSR obligations is paramount for companies meeting defined financial thresholds, including those related to net worth, sales, and profits. Effective implementation of CSR initiatives requires meticulous planning, adherence to regulatory guidelines, and transparent reporting mechanisms. Moreover, non-compliance with CSR mandates can result in significant penalties and reputational damage. This article aims to elucidate the intricacies of CSR compliance under the Companies Act, 2013, examining its applicability, obligations, implementation strategies, and the impact of non-compliance. By navigating the complexities of CSR regulations, businesses can foster sustainable development, enhance stakeholder trust, and contribute positively to society. This article provides a comprehensive overview of CSR obligations, implementation strategies, and implications for non-compliance.
| CSR COMPLIANCE: | |
| Applicability Under Section 135 of Companies Act, 2013 | Companies having NET WORTH 500 CR, (OR) SALES 1000 CR (OR) PROFIT 5 CR |
| Amount To Be Spent- Under Section 198 of Companies Act, 2013 | 2% OF AVG ANNUAL NET PROFIT FOR PRECEDDING 3 FIN. YEARS (It mainly excludes capital payments/receipts, income tax and set-off of past losses.) |
| Implementing Agency | Company shall spend CSR amount either by itself (OR) through an implementing agency before the end of financial year. |
| 1) Implanting Agency must be Registered under section 12A and approved under 80 G of the Income Tax Act, 1961 2) Shall have an established track record of 3 years in undertaking CSR activities 3) Shall have CSR-1 registration. | |
| Implementing agency can be a 1) registered society, 2) registered public trust, 3) Section 8 company (OR) | |
| entities established by the Central or State Government, or those established under an Act of Parliament or a state legislature. In the case of these two categories, registration under Section 12A and Section 80G is not required. | |
| All entities i.e. implementing agencies mentioned above that intends to undertake a CSR activity should mandatorily register themselves with the Registrar of Companies by filing the Form CSR-1 electronically. | |
| Unspent amount relating to an ongoing project under the company’s CSR policy | Company to Open ‘Unspent Corporate Social Responsibility Account’, in any scheduled bank within 30 days from the end of the financial year and must use the funds towards its obligations under the CSR policy within a period of three financial years from the date of the transfer. |
| Specified funds | If company fails to utilise the funds at the end of the three financial years, the funds should be transferred to the specified funds within a period of 30 days upon completion of the third financial years. |
| Prime Minister’s National Relief Fund. PM National Relief Fund, PM CARES Fund, Disaster Management Fund, Clean Ganga Fund, Any other fund as initiated by the central government concerning socio-economic development, relief and welfare of the scheduled caste, minorities, tribes, women, and other backward classes. | |
| Contributions made to: | |
| Public-funded universities | |
| Indian Institute of Technology (IITs) | |
| National Laboratories and Autonomous Bodies established under: | |
| Indian Council of Agricultural Research (ICAR) | |
| Council of Scientific and Industrial Research (CSIR) | |
| Department of Atomic Energy (DAE) | |
| Department of Biotechnology (DBT) | |
| Department of Pharmaceuticals | |
| Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH) | |
| Ministry of Electronics and Information Technology | |
| Indian Council of Medical Research (ICMR) | |
| Defence Research and Development Organisation (DRDO) | |
| Department of Science and Technology (DST) | |
| CSR Committee | If Company’s CSR spend is INR 50 lakh or more it must formulate CSR committee. Which consist of three or more directors, out of which at least one director must be an independent director. (Independent Director not mandatory for Pvt. CO.) |
| Duties of CSR committee | Must formulate an annual action plan for CSR spends, which lists the CSR projects, implementation and monitoring schedules, and details of impact assessment (if applicable). Recommend a CSR policy to the Board. CSR policy shall point out the activities as enumerated in Schedule VII |
| CSR Reporting | Board’s Report shall include an annual report on CSR. |
| CSR Policy | If a company has a website, it is mandatorily required to disclose the composition of the CSR committee, its CSR policy, and the projects approved by the board., activities mentioned must be undertaken, company can join hands with other companies as well. |
| Fines and Penalties for Non-Compliance | 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 Amount Unspent Corporate Social Responsibility Account, whichever is less. |
| Every officer in defaults 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. | |
| Ineligible activities Rule 2(1)(d) | 1) Activities undertaken in pursuance of the normal course of business, 2) Activities undertaken outside India, except for training of Indian sports personnel representing at national level or India at international level 3) Contribution of any amount, indirectly or directly, to any political party 4) Activities benefiting employees of the company, 5) Sponsorship activities for deriving marketing benefits for products/services, 6) Activities for fulfilling statutory obligations under any law in force in India |
| COVID-19- related activity in the normal course of business is permitted – This covers companies undertaking research and development into vaccines, medical devices, and drugs related to COVID-19, This exception is allowed up to the financial year 2022-2023. | |
| Acquisition or creation of a Capital Asset for CSR is permitted provided that it is not owned by the company: | |
| Administrative costs are allowed with cap of five percent of CSR expenditure towards general management and administration’ of CSR functions in a company. | |
| Excess Spent | Excess CSR spending can be set off against the required 2% CSR expenditure up to the immediately succeeding three financial years – needs to pass a resolution for this. It’s important to note that such excess amounts cannot include the surplus arising out of CSR activities |
| The surplus/Income arising out of CSR activities shall be utilised only for CSR purposes. | |
| Section 135(5) of the Act provides that the company should give preference to local areas (directory and not mandatory) | |
| Impact assessment | Applies to companies that have an average CSR spend of INR 10 crore or more in the past three financial years. It must be conducted for all CSR projects that have budgets of INR 1 crore and more; and have been completed one year prior to undertaking the impact assessment. |
| An ‘independent’ agency must be appointed to undertake the impact assessment. The costs of such an agency cannot exceed INR 50 lakh or five percent of the total CSR spend for that financial year (whichever is lower). | |
Conclusion: Compliance with CSR requirements under the Companies Act, 2013, is crucial for businesses to contribute positively to society while avoiding penalties for non-compliance. Understanding the intricacies of CSR obligations, implementation, and exemptions is essential for responsible corporate citizenship and sustainable business practices.
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