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Corporate Social Responsibility in India

As per Section 135 of the Companies Act 2013 the CSR provisions will be applicable companies who fulfil any of the following criteria during any of the 3 preceding financial year:
  • Companies having net worth of rupees 500 crore or more
  • Companies having turnover of rupees 1000 car or more
  • Companies having a net profit of 5,00,00,000 or more

The CSR rules have widened the ambit of compliance obligations to include the holding and subsidiary companies as well as foreign companies whose branches or project offices in India which fulfil the criteria specified.

If a company ceases to be a company covered under subsection (1) of section 135 of the act for 3 consecutive financial years shall not be required to:
  • constitute a CSR committee
    comply with the provisions contained in subsection (2) to subsection (5) of the said section till such time it meets the criteria specified in subsection (1) of section 135

Definitions:
Yogakshema - Welfare of the society.

The continuing commitment of business to maintain the society

According to the World Business Council for Sustainable Development, the continuing commitment of a business to behave ethically and contribute to economic development, while improving the quality of life of workforce as well as local community and society at large.

As per the Business for Social Responsibility, CSR is operating a business in a manner which meets or excels the ethical legal commercial and public expectation that society has from business.

CSR Expenditure:

  • The board of every company shall ensure that the company must spend in every financial year, at least 2% of the average net profits of the company made during the 3 immediate proceeding financial years
  • If the company fails to spend such an amount the board shall in the report specify the reason for not spending the amount
  • Preference to be given to local areas and around areas where it operates
  • Expenditure incurred on specified activities that are carried out in India will only qualify as CSR expenditure
  • Expenditures incurred in undertaking the normal course of business will not form a part of the CSR expenditure
  • Any surplus arising out of CSR activities will not be considered as business profit of the company

CSR Policy:

CSR policy relates to the activities that are to be undertaken by the company as specified in schedule 7 of the act and also in the hey CSR policy rules 2014

CSR Committee:

Type Of Company Number Of Directors Required To Constitute CSR Committee Number Of Independent Directors Required To Constitute CSR Committee
Listed Company 3 1
Public Company 3 No Independent Director Required
Private 3 Not Mandatory

Companies that qualify the conditions required to have an expenditure on corporate social responsibility must constitute a committee of the board to formulate and monitor the CSR policies of a company.

Under section 135 of the 2013 act the CSR committee is to consist of at least 3 directors including at least one independent director. CSR rules exempt unlisted companies and private companies that are not required to appoint an independent director from having an independent director as a part of the CSR committee.

CSR rules have further relaxed the requirement hey requiring the presence of 3 or more directors on the CSR committee of the board. In case where a private company has only 2 directors on the board, the CSR committee can be constituted with these 2 directors

List Of CSR Activities:

  • Eradicating hunger, poverty and malnutrition
  • Promoting education including special education and employment enhancing vocational skills
  • Promoting gender equality
  • Ensuring environmental sustainability
  • Protection of national heritage, art and culture
  • Measures for the benefit of armed forces veterans and their dependence
  • Training and promote rural sports, nationally recognised sports and Olympic sports
  • Contribution to the Prime Ministers National Relief Fund
  • Contribution or funds provided to Technology Incubators located within Academy Institutions
  • Rural development projects
  • Slum area development

Disclosure Requirements:
It is mandatory for companies to disclose in its board report, an annual report on CSR. The report of the board of directors attached to the financial statement of the companies would also need to include an annual report on the CSR activities of the company in the format specified below:
  • a brief outline of the companies CSR policy
  • the composition of the CSR committee
  • average net profit of the company for last 3 financial years
  • prescribe CSR expenditures
  • details of CSR spend during the financial year
In case company has failed to spend the 2% of the average net profit of the last 3 financial years, the company shall provide reasons for not spending the amount in its board report
the responsibility statement of the CSR committee that the implementation and monitoring of the CSR policy is in compliance with the CSR objectives and policies of the company.

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