Corporate Social Responsibility (CSR)

• Company formation / Compliances
• ||
• October 4, 2020

Corporate social responsibility (CSR) is a business approach that contributes to the sustainability of an organization over the long term objectives to how companies achieve their social objectives along with business objectives. It includes sustainability, social impact, and ethics, and should be about the core business. Corporate social responsibility seeks to add value to an organization’s activities by ensuring they have a positive impact on society, the environment, and the economy and enhances the goodwill of the company. CSR is important to the business because it demonstrates that the company takes an interest in social issues that have no direct impact on the profit margins of the Company. Section 135 of the Companies Act 2013 read with Companies (Corporate Social Responsibility) Rules, 2014, and Schedule VII explains the structure and functions of CSR which includes the activities to be undertaken by the company for CSR Initiatives. 

Applicability of CSR
The provisions of Section 135 of the companies Act 2013 shall be applicable for CSR when a Company having-

• Net worth of INR 500 crores or more, or;
• Turnover of INR 1000 crores or more, or;
• Net profit of INR 5 crores or more

during the immediately preceding financial year and after applicability, the company shall have to constitute CSR Committee.

CSR committee & its functions
CSR committee of the Board shall be consist of 3 or more directors and includes at least one independent director. Where an independent director is not required to be appointed in a company, the CSR Committee shall constitute 2 or more directors. The CSR committee is required to perform some of the following functions:

• The committee formulates and recommends to the Board, a CSR Policy which shall indicate the activities that can be undertaken by the company.
• The committee recommends the amount of expenditure to be made on such activities.
• The committee monitors the CSR Policy of the company.

Duty of Board of Directors

• The Board of Directors considers the recommendations provided by the CSR committee for CSR policy and approve the same.
• The Board of Directors shall ensure to undertake all activities by the company included in the CSR policy and it shall be through a Section 8 company of Companies Act 2013 or a registered trust or society, established by the company, by Central or State Government, etc. and shall have a track record established track record of 3 years in similar programs or projects.
• In pursuance of its CSR Policy, the company should spend at least 2% of the average net profits made during three immediately preceding financial years.
• If the company fails to spend such amount, the Board shall in its report specify the reasons for not spending such amount.

Important points

• If a particular amount is remaining unspent of the ongoing project, then such amount shall be transferred by the Company to a special account named Unspent Corporate Social Responsibility Account within 30 days of the closure of the financial year and amount so transferred should be utilized in 3 years from the date of transfer.
• If Such an unspent amount not spent within a period of 3 financial years from the date of such transfer, then the company shall transfer the same within a period of 30 days from the date of completion of the third financial year to a Fund specified in Schedule VII.
• If the unspent amount does not relate to an ongoing project, it should be transferred to a fund specified in Schedule VII, within a period of 6 months of expiry of the financial year.
• The expenditure on activities incurred in India only amounts to CSR expenditure and no benefit to employees of the company shall be CSR expenditure.
• The Contribution to a political party shall not be considered for CSR Activity.
• The government with respect to an existing pandemic of COVID -19 in the country, taken a series of active steps to combat the threat of COVID -19 and issued a clarification regarding:
  Contributions made to:
  • PM CARES Fund,
  • State Disaster Management Authority and
  • Spending CSR Funds for Covid-19 shall qualifyas CSR Expenditure and shall be included in Schedule VII.

  Contributions made to:

  • Chief Minister’s Relief Fund and
  • State Relief Fund shall not qualifyas CSR Expenditure.

CSR Policy
The CSR Policy includes –

• A list of CSR projects or programs in Schedule VII which a company plans to undertake.
• The monitoring process of such projects or programs, but does not include activities undertaken in the normal course of business of the company.
• The surplus arising from the CSR projects or programs shall not form a part of the profit of the company.

Penalty for Non- Compliance
If a company contravenes the provisions of CSR, it shall be punishable with a fine which shall not be less than Rs. 50,000 but which can extend to Rs. 25,00,000, and every officer in default shall be punishable with imprisonment of the term up to 3 years, with a fine not less than Rs. 50,000 but which can extend to Rs. 5,00,000, or both.

At AJSH, we assist our clients in dealing with various corporate matters (Company incorporations, statutory audits, ROC Compliances, Company winding up) in India by providing them adequate support and guidance from our end. If you have any questions or wish to know more about CSR, kindly contact us.