• By ADMIN
• Posted 28 Jun, 2023
• 1014
• 1

Corporate Social Responsibility (CSR) under Companies Act, 2013

Applicability

According to section 135(1) of the companies act, 2013.

CSR provisions shall be applicable to every company including holding or subsidiary and a foreign company having its branch office or project office in India having-

1 Turnover ₹ 1,000 cr or more or

2. Net worth ₹ 500 cr or more or

3. Net profit(u/s198) ₹ 5 cr or more, during immediately preceding financial year.

Cessation:

Requirement for compliance of CSR up to three years, even after a company on which section 135(1) not applicable.

Every company which ceases to be a company covered under section 135(1) of the act for three consecutive financial years shall not be required to-

- Constitute a CSR Committee and

- Comply with the provisions contained in sub-section (2) to (6) of the said section, till such time it meets the criteria specified in section 135(1).

CSR Committee:

Companies that trigger any of the aforesaid conditions must constitute a CSR committee of the board to formulate and monitor the CSR policy of a company.

Composition of Committee:

The CSR committee to consist of three directors or more, including at least 1 Independent director.

Where a company is not required to appoint an independent director, it shall have in its CSR Committee two or more directors.

Where a private company has only two directors on the board, the CSR Committee can be constituted with these two directors.

The CSR committee for foreign company shall comprise of at least two persons of which one person should be resident in India and the other person nominated by the foreign company.

Exemption of Constitution of CSR committee:

Where the amount to be spent by a company under CSR provision does not exceed ₹ 50 lakh, the requirement of constitution of CSR committee shall not be applicable and the functions of such committee shall be discharged by the board of the directors of such company.

CSR Implementation:

The board shall ensure that CSR activities are undertaken by company itself or through-

Mandatory Registration of CSR Entity:

Every eligible entity who intends to undertake any CSR activities, shall register itself with CG by filing the form CSR-1, such form should be duly filed before implementing each CSR project.

On submission of the form CSR-1 on the portal, a unique CSR registration number shall be generated by system automatically, such unique CSR registration number shall be included in annual report on CSR in the prescribed format. and the generated unique CSR registration number shall be valid for a period of 3 years.

CFO Certification:

The board of Directors of the company shall satisfy itself that the funds so disbursed have been utilised for the purpose and in the manner as approved by it and the CFO or the person responsible for the financial management shall certify to the effect.

CSR Expenditure:

The board of every eligible company shall ensure that the company spends, in every financial year, at least 2% of average net profit of the company made during the 3 immediately preceding financial year or where the company not completed the period of 3 financial year since its incorporation, and Such amount should be spent in pursuance of its CSR policy.

Administrative Overheads:

The board shall ensure that the administrative overheads shall not exceed 5% of the total CSR expenditure of the company for the financial year.

Administrative overheads include expenses incurred by the company on:

- General management

- Administration

Administrative overheads Excludes expenses directly incurred on CSR project for:

- Designing

- Implementation

- Evaluation

- Monitoring

Surplus arising out of the CSR Activities:

This means in case the project is income generated by way of fees etc., such income should be ploughed back into the same projects but not form of the business profit of the company.

Any surplus arising out of the CSR Activities shall not form part of the business profit of a company and shall be ploughed back into the same project or shall be transferred to the unspent CSR Account and spent in pursuance of CSR Policy or transfer such surplus amount to fund specified in schedule vii, with in a period of 6 months of the expiry of the financial year.

Excess CSR spends may be set off:

Where a company spent on CSR activities more than 2%, such excess amount may be set-off against the requirement of CSR spending up to the immediate succeeding 3 financial year, and the company can set-off such excess amount spent, by passing board resolution at board meeting. 

Acquisition of Capital Assets:

The CSR amount may be sent by a company for creation or acquisition of a capital asset, which shall be held by-

- Section 8 company or Trust or Society, having charitable objects and CSR Registration Number.

- Beneficiaries of the said CSR projects, in the self-help groups, collectives, entities;

- a public authority

CSR unspent:

Unspent amount related to ongoing project:

Unspent amount related to an ongoing project, shall be transferred by the company within a period of 30 days form the end of the financial year to CSR Unspent account and such amount shall be spent by the company as per their CSR policy within a period of 3 years from the date such transfer.

If company fails to spent such amount within a period of 3 years, such unspent shall be transfer to funds specified in schedule vii of the companies act, within a period of 30 days from the date of completion of 3rd financial year.

Unspent amount not related to ongoing project:

Such CSR unspent amount shall be transferred to funds specified in schedule vii of the companies act, within a period of 6 months of the end of the financial year.

CSR Reporting:

Preparation of CSR Report:

It is mandatory to include an annual report on CSR in the board report of the company. Such report shall contain the details of CSR activities and contents of CSR policy shall be made available on company’s website.

Director report:

The company shall annex with its board report an annual report on CSR containing such particulars specified as specified under rules.

Website Disclosure:

The board of directors of the company shall ensure essential disclosure of the following on the website of the company, if any;

- The composition of the CSR committee

- CSR policy and projects approved by the board

Impact Assessment for big CSR projects:

Any company having average CSR obligation of Rs.10 cr or more in the 3 immediately preceding financial year shall undertake impact assessment through an independent agency of their CSR project having outlays of Rs.1 cr or more which have been completed not less than 1 year before undertaking the impact study.

The impact assessment reports shall be placed before the board shall be annexed to annual report on CSR.

A company undertaking impact assessment may book the expenditure towards CSR for that financial year, which shall not exceed 5% of total CSR expenditure for that financial year or Rs. 50 lakhs, W.E.L.

Penalty:

Previously CSR provision was following “comply or explain” approach If a company did not comply, it only had to mention the reason for non-compliance in their board report.

Since there were serious compliance gaps, government had introduced penalty for non-compliance, the approach shifted to “comply or pay fine”.

Penalty to company

Upon twice the amount required to be transferred by the company to fund specified in schedule VII or the Unspent CSR account or Rs.1 Crore whichever is less.

Penalty to every office of the company who is in default

1/10 of the amount required to be transferred by the company to fund specified in schedule vii or the Unspent CSR account or Rs.2 lakhs, whichever is less.

FAQs:

1. If a holding company is covered under CSR provisions, does CSR also apply to its subsidiary company?

A holding or subsidiary of a company falling within the ambit of CSR provisions, is not required to comply with CSR provisions unless the holding or subsidiary, as the case may be, by itself fulfils the above-mentioned criteria. 

2. If a company has not completed the period of 3 financial years since incorporation, is it required to comply with the CSR provisions?

If the company has not completed the period of 3 financial years since incorporation but it satisfies any criteria of CSR provisions, then such company shall spend at least 2% of average net profit (u/s198) of the company made during such immediately preceding financial years since the date of incorporation.

3. What are the CSR activities?

CSR activities include any activities as prescribed under the schedule vii of companies act, but does not include below mentioned activities-

- Activities undertaken outside India

- Contribution to political parties

- Activities benefiting employees

- Activities normal course of business

- Activities supported by the companies on sponsorship basis

- Activities fulfilment of other statutory obligations