About CSR :
Corporate Social Responsibility (CSR) is a form of self-regulation integrated into a business model. It is also known as corporate conscience, corporate citizenship, Social performance or sustainable Business. Basically it a concept, imposing liability on the company to contribute to the society (whether towards environmental causes, educational promotion, social causes, etc.) along with the reinforced duty to conduct the business in an ethical manner.
Benefits of CSR:
The benefits of CSR could be listed as follows:
- strengthened brand positioning;
- Enhanced corporate image and reputation;
- Satisfaction of economic and social contribution to society;
- Contribution to the surrounding society;
- Increased ability to attract, motivate and retain employees;
- Enhanced sales and market share;
- Increased appeals to investors and financial analysts;
- Local economy gains in all dimensions
Compulsory formation of Corporate Social Responsibility Committee (CSRC):
Every company whether Listed or unlisted -having a Net worth of Rs. 500 crore or more, or a turnover of Rs. 1000 crore or more or a Net Profit of Rs. 5 crores or more, during immediately preceding financial year, shall constitute a CSR Committee. [Section 135(1)]
Exceptions/Modifications/
As per MCA Notification:
- In case of Specified IFSC Public Company - Section 135 shall not apply for a period of five years from the commencement of business of a Specified IFSC public company.
-In case of Specified IFSC Private Company - Section 135 shall not apply for a period of five years from the commencement of business of a Specified IFSC private company.
Composition of CSR Committee:
-CSR Committee Consisting of 3 or more directors, out of which at least one director shall be an independent director.
-However, where any Company not required to appoint independent director, it shall have in it's CSR Committee any two or more directors.[Section 135(1)]
Disclosure in the Board's Report:
-The Board Report shall disclose the composition of the Corporate Social Responsibility Committee.
-If the company fails to contribute in CSR, it is only required to specify reasons in it's Board report for that failure.
[Section.135(2)]
Work of CSR Committee:
-The CSR Committee shall, -
* Formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII;
*Recommend the amount of expenditure to be incurred on the activities referred above.
*Monitor the Corporate Social Responsibility Policy of the company from time to time.
[Section.135(3)]
Duty of BOD in respect of CSR:
The Board of every Company referred to in Section.135(1) shall
-after taking into account the recommendation made by Corporate Social Responsibility committee,
*approve the CSR Policy for the company and
*disclose contents of such policy in it's report and
*Place the CSR Policy on the company's website, if any, and
- ensure that the activities as are included in the Corporate Social Responsibility Policy of the company are undertaken by the company.
[Section.135(4)]
Expenses in pursuance of CSR:
-A company that satisfies any one of the limits specified in section 135(1) shall require to contribute 2 percent of its Average Net Profits of preceding three financial years in CSR activities. [Section.135(5)]
Note:- Net profit means Profit before Tax (PBT) calculated as per Section 198.
Activities which could not qualify for CSR:
As per MCA Clarification, the following activities couldn't qualify for CSR:
1. The CSR Project or Programs or activities that benefit only the employees of the company and their families.
2. One-Off events such as marathons/awards/charitable contribution/advertisement/
3. Expenses incurred by companies for the fulfillment of any other act/Statue of regulations (such as Labour Laws, Land Acquisition Act, 2013, Apprentice Act,1961 etc.)
4. Ensuring environmental sustainability;
5.Protection of National Heritage, art and culture;
6. Measuring for the benefit of armed force;
7. Training to promote sports;
8. Contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government or the State Governments;
9. Contribution to technology incubators approved by Central Government;
10.Rural Development projects;
11.Slum area development.
12. Disaster management including Relief, rehabilitation and reconstruction activities.
Activities which could not qualify for CSR:
As per MCA Clarification, the following activities couldn't qualify for CSR:
1. The CSR Project or Programs or activities that benefit only the employees of the company and their families.
2. One-Off events such as marathons/awards/charitable contribution/advertisement/
3. Expenses incurred by companies for the fulfillment of any other act/Statue of regulations (such as Labour Laws, Land Acquisition Act, 2013, Apprentice Act,1961, etc.)
4. Contribution of any amount directly or indirectly to any political party.
5. Activities undertaken by the company in pursuance of it's normal course of business.
6. The Project on Programmes or activities are undertaken outside India.
Tax Benefit under CSR:
-No specific tax exemptions have been extended to CSR expenditure. As per 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, 196
Consequences for Non-Compliance:
It is mandatory to contribute a specified amount towards CSR activities, If Company fails to contribute, it is only required to specify reasons in it's Board report for that failure. There is no fine or penalty in the Section for its failure to contribute towards CSR Activities.
Note: -If failure to disclose such information in Board Report then Section 134 of the Companies Act,2013 shall apply. -As per Section 134 of Companies Act,2013,The Company 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 the 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.
ABOUT THE AUTHOR
Kanchan Saxena
Commerce Graduate, Pursuing M.Com (Final), & Budding Company Secretary.
Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, I assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not professional advice and is subject to change without notice. I assume no responsibility for the consequences of the use of such information.
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Good explanation
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