Introduction

With the introduction of Companies Act, 2013, Corporate Social Responsibility (CSR), which was till then a voluntary activity has been made obligatory for certain companies. These obligations mainly come in the form of mandatory amounts companies must contribute to remediating social problems. In a country such as India, where a large proportion of the population has low income and lacks access to proper sanitation as well as education, the introduction of CSR comes as a positive step towards ensuring that business contributes to equitable and sustainable economic development.

This article is a complete guide of all the provisions of CSR in the Companies Act, 2013.

Entities covered by CSR Obligations

Every company including its holding or subsidiary and a foreign company having its branch office or project office in India, which has

• Net worth >= Rs 500 crore, or
• Turnover>= Rs 1000 crore, or,
• Net Profit >= Rs 5 crore

shall set up a CSR board committee.

Composition of CSR Committee

• The CSR Committee shall consist of at least 3 directors, one of whom must be independent.
• An unlisted public company or private company which is not required to appoint an independent director, shall have its CSR committee without such director.
• A private company with only 2 directors on its Board shall constitute its CSR Committee with 2 directors.
• The CSR Committee of a foreign company shall have at least 2 members, out of which one shall be an Indian resident and another shall be a person nominated by the foreign company.

Functions of CSR Committee

• Formulate and recommend a CSR Policy which shall contain
  • A list of CSR projects/ programs which the company plans to undertake,
  • Modalities of execution of such projects/ programs,
  • Implementation schedules of such activities.
• Recommend amount of expenditure to be incurred in CSR activities,
• Monitoring the CSR Policy and projects/ programs undertaken as CSR.

Required amount of CSR spending

Any company, to which the CSR criteria are applicable, shall spend at least 2% of its average net profits made during 3 immediately preceding financial years (“Specified Amount”) on CSR activities.

“Net Profit” here, means the net profit calculated in accordance with the applicable provisions of the Companies Act, but shall exclude

• Any profit from overseas branch, whether operated as a separate company or otherwise;
• Any dividend received from other companies in India, which are covered under and complying with the provisions of CSR under Sec 135.

Functions of Board with relation to CSR

• Approve the CSR Policy,
• Disclose contents of such policy in the Board’s report to its shareholders and on the company’s website,
• Ensure that activities included in the CSR Policy are undertaken by the Company,
• If the company fails to spend the Specified Amount on CSR, disclose the reasons for such failure in the annual report.

CSR Activities

• The companies shall spend the funds allocated for CSR in any activity relating to
  • Eradication of hunger, poverty and malnutrition
  • Promoting preventive healthcare and sanitation
  • Contribution to Swach Bharat Kosh set up by Central Government
  • Making available safe drinking water
  • Promoting education and employment enhancing vocation skills
  • Promoting gender equality
  • Setting up homes and hostels for women and orphans, old age homes, day care centres, etc.
  • Measures for reducing inequalities faced by socially and economically backward groups
  • Ensuring environmental sustainability, ecological balance
  • Protecting flora and fauna, animal welfare, conservation of natural resources, maintaining quality of soil, air and water
  • Contribution to Clean Ganga Fund set up by the Central Government for rejuvenation  of river Ganga
  • Protection of national heritage, art and culture
  • Setting up public libraries
  • Promotion and development of traditional arts and handicrafts
  • Measures for benefit of armed forces veterans, wars widows and their dependents
  • Training to promote rural sports, nationally recognized sports, Paralympic sports and Olympic sports
  • Contribution to Prime Minister’s National Relief Fund or any other fund set up by Central Government for socio-economic development and relief and welfare of SC, ST, other backward classes, minorities and women
  • Contribution to funds provided to technology incubators located within academic institutions which are approved by Central Government
  • Rural development projects
• CSR expenditure shall include contribution to corpus for projects relating to CSR activities approved by the Board.
• CSR activities must be undertaken in project/ programme mode. One-off events such as marathon, awards, charitable contribution, etc. would not be qualified as part of CSR expenditure.
• Salaries paid by company to CSR staff or volunteers can be factored into the CSR project cost as a part of CSR expenditure.
• The following activities shall not be considered as CSR activities by the Companies Act, 2013:
  • Direct or indirect contribution to any political party,
  • Activities undertaken in normal course of business,
  • Projects that benefit only the employees of the company,
  • Any CSR activities outside of India.

Means of undertaking CSR Activities

• The Board may decide to undertake its CSR activities, through
  • A registered trust
  • A registered society
  • Company established by the company or its holding or subsidiary or associate company under Section 8

Subject to the following conditions

• If such trust is not established by the company, its subsidiary, holding or associate company, it shall have an established track record of 3 years in undertaking similar programs, and
• The company has specified the project to be undertaken through these entities, modalities of utilization of funds and monitoring and reporting mechanism.

• A company may also collaborate with other companies for undertaking projects of CSR in such a way that the CSR committees of respective companies are in a position to report separately on such projects.
• Companies may build CSR capacities of its own personnel as well as those of their implementing agencies through institutions with established track record of at least 3 financial years. However, such expenditure including the expenditure on administrative overheads shall not exceed 5% of the total CSR expenditure of the company in 1 financial year.
• CSR spending by foreign holding company for CSR activities in India shall qualify as CSR spend of Indian subsidiary if the CSR expenditures are routed through Indian subsidiaries.

CSR Reporting

• Board’s report of the company shall include an annual report on CSR
• In case of a foreign company, an annexure regarding report on CSR shall be attached to the balance-sheet filed with the Registrar by such company

Non-applicability of CSR provisions

When a company ceases to be covered under the above criteria for 3 consecutive financial years, it shall not be required to

• Constitute a CSR Committee and
• Comply with the CSR provisions

till the time it meets the specified criteria.