Carry Forwarding of the Corporate Social Responsibility Funds
The Corporate Social Responsibility policy inception is pursuant to Section
135 of the Companies Act, 2013.
Section 135 (1) states:
Every company having a net worth of rupees five
hundred crores or more, or turnover of rupees one thousand crores or more or
a net profit of rupees five crores or more during any financial year shall
constitute a Corporate Social Responsibility Committee of the Board
consisting of three or more directors, out of which at least one director
shall be an Independent director.”
Section 135 (2), (3), (4) states:
about the composition of the CSR Committee,
the process of the committee and approval on the proposal of the Committee.
Section 135 (5) states:
The Board of every company referred to in
sub-section (1), shall ensure that the company spends, in every financial
year, at least two percent of the average new profits of the company made
during the three immediately preceding financial years, in pursuance of its
Corporate Social Responsibility Policy.
Inference: from the aforementioned, it I inferred that any company which has
a net worth of rupees five hundred crore or more, or turnover of rupees one
thousand crore or more or a net profit of rupees five crore of more during
any financial year has to comply with Section 135 pertaining to the
Corporate Social Responsibility.
Further, that the board of every company failing under the purview of
Section 2135 has to ensure that the company spends at least 2% of the
average net profit before tax (PBT) of the company made during three
immediately preceding financial year.
So an interesting question arises:
Whether the unspent amount from out of the minimum required CSR expenditure
be carried forward to the next year
The Board is free to decide, whether any unspent amount from out of minimum
required CSR expenditure is to be carried forward to the next year. However,
the carried forward amount should be over and above the next year’s CSR
allocation equivalent to at least 2% of the average net profit of the
company of the immediately preceding three year.
Though the Board has the liberty to decide, whether the unspent CSR fund
amount shall be, carry forwarded to the next year, however, the same shall
not be subjected to offsetting of the minimum 2% CSR fund amount of the next
Further, inferring the intention of the legislation of this particular
provision, it is advised in the best interest of the beneficiaries of this
provision, that such amount which as unspent in the last financial year be
carry forwarded to the next year so as to ensure the compliance with Section
145 (5) of the Companies Act, 2013.
Suppose, Company X had budgeted for 2015, the 2% of their average net profit
before tax (PBT) of the 2012, 2013, 2014 as Rs10,00,000, however, for the
year 2015, they could spend only Rs 7,50,000 for CSR. The Board of the
Company can certainly carry forward the remaining Rs 2 50,000 for the year
2016, however, this amount shall be over and above the 2% of their average
net profit before tax (PBT) for the year 2013, 2014 and 2015.
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