Corporate Social Responsibility (CSR) in India

Corporate Social responsibility (CSR) is continuing commitment by businesses to integrate social and environmental concerns in their business operations.Changes in the global environment increasingly challenge business around the world to look beyond financial performance, and to integrate social and environmental concerns into their strategic management.

Prior to Companies Act 2013, CSR in India has traditionally been seen as a philanthropic activity. And in keeping with the Indian tradition, it was believed that every company has a moral responsibility to play an active role in discharging the social obligations, subject to the financial health of the company. In the early 90’s Mahatma Gandhi introduced the concept of trusteeship helping socio-economic growth. CSR was influenced by family values, traditions, culture and religion.

On 29th August 2013, The Companies Act 2013 replaced the Companies Act of 1956. The New Act has introduced far-reaching changes that affect company formation, administration, and governance, and incorporates an additional section i.e. Section 135 – clause on Corporate Social Responsibility obligations (“CSR”) for companies listed in India. The clause covers the essential prerequisites pertaining to the execution, fund allotment and reporting for successful project implementation.

India became the first country to legislate the need to undertake CSR activities and mandatorily report CSR initiatives under the new Companies Act 2013. This is the beginning of a new era for CSR in India.

To know more, click below:

 

Every company having:

> Net Worth of Rs.500 Crores or More
> Turnover of Rs.1000 Crores or More
> Not Profit of Rs.5 Crore or More (Net Profit Before Tax)

during the immediately preceding financial year shall establish a Corporate Social Responsibility Committee of the Board involving of three or more directors, out of which at least one director shall be an independent director.

Provided that where a company is not required to appoint an independent, it shall have in its Corporate Social Responsibility Committee two or more directors.

WHAT IS THE ROLE OF CORPORATE SOCIAL RESPONSIBILITY COMMITTEE?

(a) formulate and recommend to the Board, a Corporate Social Responsibility Policy,

(b) recommend the amount of expenditure to be incurred on the activities and

(c) monitor the Corporate Social Responsibility Policy of the company from time to time.

WHAT BOARD WILL DO?

 The Board of every company shall —

(a) approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company’s website,

(b) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company,

(c) Ensure that the company spends, in every financial year, at least 2% of the average net profits of the company made during the three immediately preceding financial years, where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years (Yet to be notified)

Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount kept for Corporate Social Responsibility activities:

If a company contravenes the provisions shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees and every officer of such company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.

WHAT IS NEW AS PER COMPANIES AMENDMENT ACT, 2019

  • If the company fails to spend such amount, the Board shall, in its report made specify the reasons for not spending the amount  and, unless the unspent amount relates to any ongoing project referred transfer such unspent amount to a Fund specified in Schedule VII (FOR EXAMPLE “PM RELIEF FUND”, within a period of six months of the expiry of the financial year
  • Any amount remaining unspent shall be transferred by the company within a period of thirty days from the end of the financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account, and such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third

 Suggested Areas of Activities for companies to implement their CSR in PROJECT MODE are: (as per Schedule VII) 

Activities which may be included by companies in their Corporate Social Responsibility Policies Activities relating to:

(i) Eradicating hunger, poverty and malnutrition, ‘promoting health care including preventinve health care and sanitation including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water.

(ii) promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects.

(iii) 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.

(iv) ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga.

(v) 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 art and handicrafts;

(vi) measures for the benefit of armed forces veterans, war widows and their dependents;

(vii) training to promote rural sports, nationally recognised sports, paralympic sports and olympic sports

(viii) contribution to the prime minister’s national relief fund or any other fund set up by the central govt. for socio economic development and relief and welfare of the schedule caste, tribes, other backward classes, minorities and women;

(ix) Contribution to incubators funded by Central Government or State Government or any agency or Public Sector Undertaking of Central Government or State Government, and contributions to public funded Universities, Indian Institute of Technology (IITs), National Laboratories and Autonomous Bodies (established under the auspices of Indian Council of Agricultural Research (ICAR), Indian Council of Medical Research (ICMR), Council of Scientific and Industrial Research (CSIR), Department of Atomic Energy (DAE), Defence Research and Development Organisation (DRDO), Department of Biotechnology (DBT), Department of Science and Technology (DST), Ministry of Electronics and Information Technology) engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs).

(x) rural development projects

(xi) slum area development.

Explanation.- For the purposes of this item, the term `slum area’ shall mean any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force.

(xii) disaster management, including relief, rehabilitation and reconstruction activities

 

HOW THE CSR ACTIVITIES SHALL BE UNDERTAKEN BY THE COMPANY, AS PER ITS STATED CSR POLICY?

The Board of a company may decide to undertake its CSR activities approved by the CSR Committee, through

(a) a company established under section 8 of the Act or a registered trust or a registered society, established by the company, either singly or along with any other company, or

(b) a company established under section 8 of the Act or a registered trust or a registered society, established by the Central Government or State Government or any entity established under an Act of Parliament or a State legislature:

Provided that- if, the Board of a company decides to undertake its CSR activities through a company established under section 8 of the Act or a registered trust or a registered society, other than those specified in this sub-rule, such company or trust or society shall have an established track record of three years in undertaking similar programs or projects

(c) Company may also collaborate with other companies for undertaking projects or programs or CSR activities in such a manner that the CSR Committees of respective companies are in a position to report separately on such projects or programs in accordance with these rules.

(d) Companies may build CSR capacities of their own personnel as well as those of their Implementing agencies through Institutions with established track records of at least three financial years

FOLLOWING ACTIVITIES SHALL NOT BE CONSIDERED AS CSR ACTIVTIES:

  • Contribution of any amount directly or indirectly to any political party shall not be considered as CSR activity.
  • The CSR projects or programs or activities that benefit only the employees of the company and their families shall not be considered as CSR activities in accordance with section 135 of the Act.

 

CSR Laws in India

 

S.No.

Reference

Date

Description

Web links

 

General Circular No. 10 /2020

23.03.2020

Clarification on spending of CSR
funds for COVID-19.

https://www.mca.gov.in/bin/ebook/dms/getdocument?doc=MTM1OTc=&docCategory=NotificationandCirculars&type=open

 

General Circular No. 15 /2020

10.04.2020

COVID-19 related Frequently
Asked Questions (FAQs) on Corporate Social Responsibility (CSR)

https://www.mca.gov.in/bin/ebook/dms/getdocument?doc=MTM1OTE=&docCategory=NotificationandCirculars&type=open

 

Notification G.S.R. 313(E)

27.03.2020

Amendment of item no.(viii) of
Schedule VII of the Companies Act,2013

https://www.mca.gov.in/bin/ebook/dms/getdocument?doc=NzY2MQ==&docCategory=Notifications&type=open

 

Notification G.S.R. 399(E)

25.06.2020

Amendment of item no.(vi) of
Schedule VII of the Companies Act,2013

https://www.mca.gov.in/bin/ebook/dms/getdocument?doc=NzY2MA==&docCategory=Notifications&type=open

 

Notification G.S.R. 526(E)

24.08.2020

Amendment of the Companies (CSR
Policy) Rules, 2014 of the Companies Act, 2013

https://www.mca.gov.in/bin/ebook/dms/getdocument?doc=MTM1NDA=&docCategory=Notifications&type=open

 

Notification G.S.R. 525(E)

24.08.2020

Amendment of the Companies (CSR
Policy) Rules, 2014 of the Companies Act, 2013

https://www.mca.gov.in/bin/ebook/dms/getdocument?doc=NzY1OA==&docCategory=NotificationandCirculars&type=open

 

Notification G.S.R. 40(E)

23.02.2021

G.S.R. 40(E)-Companies (CSR)
Amendment Rules dt 22.01.2021

https://www.mca.gov.in/bin/ebook/dms/getdocument?doc=MTM1MTc=&docCategory=Notifications&type=open

 

 

 General Circular No. 14 /2021

25.08.2021

 

 Frequently Asked Questions (FAQs) on
Corporate Social Responsibility (CSR) -reg

ATTACHED PDF (GeneralCircularNo14_25082021)

1.What is meaning of ‘any financial year’ mentioned in Section 135 (1) of the Companies Act, 2013?
“Any Financial year” referred under Sub- Section (1) of Section 135 of the Act read with Rule 3(2) of Companies CSR Rule, 2014 implies any of the three preceding financial years ( may refer General Circular No. 21/2014, dated: 18.06.2014).

2.Compliance under section 135 of the Act i.e. Corporate Social Responsibility, is applicable from which Financial Year?
The compliance of the provisions of CSR under the Companies Act, 2013 i.e. constitution of CSR Committee, formulation of CSR Policy, the spending of requisite amount on CSR activities came into force from April, 2014.

3.Whether expenditure by Companies on activities covered under Schedule VII for the fulfillment of any Act/Statute of Regulations will count as CSR expenditure?
This would not count as CSR expenditure. (may refer point no. (iii) of General Circular No. 21/2014, dated: 18.06.2014).

4. Can the expenditure incurred towards personnel exclusively appointed by the companies for implementing the CSR activities of the company, be included in the expenditure earmarked for CSR activities?
Salary paid by the companies to regular CSR staff as well as employees, who render their services for CSR will be part of Administrative overheads and should not exceed 5% of the total CSR expenditure as per rule 4(6) of CSR Policy, Rules 2014.

5.Whether CSR expenditure of a company can be claimed as a business expenditure?
The amount spent by a company towards CSR cannot be claimed as business expenditure. The Finance Act, 2014 provides that any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.

6. Whether the ‘average net profit’ criteria for section 135(5) is Net profit before tax or Net profit after tax?
Computation of net profit for section 135 is as per section 198 of the Companies Act, 2013 which primarily is NET PROFIT BEFORE TAX.

7. Can the CSR expenditure be spent on the activities beyond Schedule VII?
General Circular No. 21/2014 dated June18, 2014 of MCA has clarified that the statutory provision and provisions of CSR Rules, 2014, is to ensure that while activities undertaken in pursuance of the CSR policy must be relatable to Schedule VII of the Companies Act 2013. However, the entries in the said Schedule VII must be interpreted liberally so as to capture the essence of the subjects enumerated in the said Schedule. The items enlisted in the Schedule VII of the Act, are broad-based and are intended to cover a wide range of activities.

8. What tax benefits can be availed under CSR?
No specific tax exemptions have been extended to CSR expenditure per se. Finance Act, 2014 also clarifies that expenditure on CSR does not form part of business expenditure. While no specific tax exemption has been extended to expenditure incurred on CSR, spending on several activities like contributions to Prime Minister’s Relief Fund, scientific research, rural development projects, skill development projects, agricultural extension projects, etc., which find place in Schedule VII, already enjoy exemptions under different sections of the Income Tax Act, 1961.

9.Which activities would not qualify as CSR Expenditure?

The CSR projects or programs or activities that benefit only the employees of the company and their families shall not be considered as CSR activities in accordance with section 135 of the Act. • One-off events such as marathons/ awards/ charitable contribution/ advertisement/sponsorships of TV programmes etc. would not be qualified as part of CSR expenditure. • Expenses incurred by companies for the fulfillment of any Act/ Statute of regulations (such as Labour Laws, Land Acquisition Act etc.) would not count as CSR expenditure under the Companies Act. • Contribution of any amount directly or indirectly to any political party shall not be considered as a CSR activity. Activities undertaken by the company in pursuance of its normal course of business.

10. Will being a holding or subsidiary company of a company which fulfils the criteria under section 135(1) make the company liable to comply with section 135, even if the company itself fulfills the criteria
Being a holding or subsidiary company of a company which fulfils the criteria under section 135(1) doesn’t make the company liable to comply with section 135, unless the company itself fulfills the criteria.

11.Whether provisions of CSR are applicable on Section 8 Company, if it fulfills the criteria of section 135(1) of the Act.
Section 135 of the Act reads “ Every company…….”, i.e no specific exemption given to section 8 companies with regard to applicability of section 135, hence section 8 companies are required to follow CSR provisions.

12. Can donation of money to a trust by a company be treated as CSR expenditure of the company?
General Circular No. 21/2014 of MCA dated June 18, 2014 clarifies that Contribution to Corpus of a Trust/ Society/ Section 8 companies etc. will qualify as CSR expenditure as long as :
(a) the Trust/ Society/ Section 8 company etc. is created exclusively for undertaking CSR activities or
(b) where the corpus is created exclusively for a purpose directly relatable to a subject covered in Schedule VII of the Act

13. There is no need to prepare director’s report for Foreign company so whether it is mandatory for foreign Company also to give reporting of CSR activity
In case of a foreign company, the balance sheet filed under sub-clause (b) of sub-section (1) of section 381 shall contain an Annexure regarding report on CSR.

14.Whether contribution to political party is considered as CSR activity?
Contribution of any amount directly or indirectly to any political party under section 182 of the Act, shall not be considered as CSR activity. (May refer Rule 4(7) of CSR Policy, Rules 2014).

15.Whether CSR projects or programs for employee of the Company and their family will form part of CSR activity?
NO, The CSR projects or programs or activities that benefit only the employees of the company and their Families shall not be considered as CSR activities in accordance with section 135 of the Act’. (May refer Rule 4(5) of CSR Policy, Rules 2014).

16. Whether CSR projects and programme undertaken outside India consider as CSR activity?
Any excess amount spent (i.e., more than 2% as specified in section 135) cannot be carried to the subsequent years and adjusted against the year’s CSR expenditure.

 17. Whether expenditure incurred on disaster relief qualifies for CSR or not?
Disaster relief can cover wide range of activities that can be appropriately shown under various items listed in Schedule VII. For example,
(i) medical aid can be covered under ‘promoting health care including preventive health care.’
(ii) food supply can be covered under eradicating hunger, poverty and malnutrition.
(iii) supply of clean water can be covered under ‘sanitation and making available safe drinking water’. (May refer to annexure to General Circular dated 18.06.2014

18. Whether contribution in kind is permissible as CSR or not?
Section 135 prescribes “….shall ensure that company spends….”.The company has to spend the amount.

 

S. No.

Frequently AskedQuestions (FAQs)

Reply

1

Whether contribution made to ‘PM CARES Fund’ shall qualify as CSR expenditure?

Contribution made to ‘PM CARES Fund’ shall qualify as CSR expenditure under item no (viii) of Schedule VII of the Companies Act, 2013 and it has been further clarified vide Office memorandum F. No. CSR-05/1/2020-CSR-MCA dated 28th March, 2020.

2.

Whether contribution made to ‘Chief Minister’s Relief Funds’ or ‘State Relief Fund for COVID-19’ shall qualify as CSRexpenditure?

‘Chief Minister’s Relief Fund’ or ‘State Relief Fund for COVID-19’ is not included in Schedule VII of the Companies Act, 2013 and therefore any contribution to such funds shall not qualify as admissible CSR expenditure.

3.

Whether contribution made to State DisasterManagement Authority shall qualify as CSR expenditure?

Contribution made to State Disaster Management Authority to combat COVID-19

shall qualify as CSR expenditure under item no (xii) of Schedule VII of the 2013 and clarified vide general circular No. 10/2020 dated 23rd March, 2020.

4.

Whether spending of CSR funds for COVID-19 related activities shall qualify as CSR expenditure?

Ministry vide general circular No. 10/2020 dated 23rd March, 2020 has clarified that spending CSR funds for COVID-19 related activities shall qualify as CSR expenditure. It is further clarified that funds may be spent for various activities related to COVID-19 under items nos. (i) and (xii) of Schedule VII relating to promotion of health care including preventive health care and sanitation, and disaster management. Further, as per general circular No. 21/2014 dated 18.06.2014, items in Schedule VII are broad based and may be interpreted liberally for this purpose.

5.

Whether payment of salary/wages to employees and workers, including contract labour, during the lockdown period can be adjusted against the CSR expenditure of the companies?

Payment of salary/ wages in normal circumstances is a contractual and statutory obligation of the company. Similarly, payment of salary/ wages to employees and workers even during the lockdown period is a moral obligation of the employers, as they have no alternative source of employment or livelihood during this period. Thus, payment of salary/ wages to employees and workers during the lockdown period (including imposition of other social distancing requirements) shall not qualify as admissible CSR expenditure.

6.

Whether payment of wages made to casual /daily wage workers during the lockdown period can be adjusted against the CSR expenditure of the companies?

Payment of wages to temporary or casual or daily wage workers during the lockdown period is part of the moral/ humanitarian/ contractual obligations of the company and is applicable to all companies irrespective of whether they have any legal obligation for CSR contribution under section 135 of the Companies Act 2013. Hence, payment of wages to temporary or casual or daily wage workers during the lockdown period shall not count towards CSR expenditure.

7.

Whether payment of ex- gratia to temporary /casual /daily wage workers shall qualify as CSR expenditure?

If any ex-gratia payment is made to temporary / casual workers/ daily wage workers over and above the disbursement of wages, specifically for the purpose of fighting COVID 19, the same shall be admissible towards CSR expenditure as a one- time exception provided there is an explicit declaration to that effect by the Board of the company, which is duly certified by the statutory

auditor.

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