CSR Provisions-Companies Act 2013

Corporate Social Responsibility has come of age in India now with Companies Rule 2014. Here are the main points related to CSR.

Applicability of CSR Provisions

1.      CSR provisions have been notified on 27^th February, 2014 and are enacted u/s. 135 and Schedule VII of the Companies Act 2013 read with Companies (Corporate Social Responsibility Policy) Rules, 2014 which shall be effective from 1^st April 2014

2.      CSR provisions shall be complied and CSR committee shall be formed if during a financial year any one of the following conditions are fulfilled by domestic company including its holding and subsidiary company and foreign companies having a branch office / project office in India

a. net worth of Rs. 500 crores or more, OR

b. turnover of Rs. 1000 crores or more, OR

c. net profit of Rs. 5 crores or more

3.      Net profit for the purpose of computing applicability shall mean net profit as per the financial statements prepared in accordance with the applicable provisions but will not include the following:

(a)   any dividend received from any company in India governed by sec 135; and

(b)   any profit arising from overseas branch or branches of the company whether operated as separate company or otherwise.

Formation of CSR Committee

4.      The committee shall comprise of 3 or more directors, out of which at least one should be an independent director.

Quantum of CSR

5.      A sum equivalent to 2% of the Average Net Profit made by the company in preceding three financial years shall be the amount to be spent on CSR activities. “Average Net Profit” shall be calculated in accordance with the provisions of section 198 of the Act.

Functions of CSR Committee

6.      The functions to be performed by the CSR committee are as follows:

a.      Formulate and recommend to the Board, a Corporate Social Responsibility Policy, which shall indicate the activities to be undertaken by the company. The CSR activity/ies to be undertaken by a corporate entity are specified in Schedule VII (described below)

b.      Recommend the amount of expenditure to be incurred

c.       Monitor the Corporate Social Responsibility Policy of the company from time to time

Accountability of the Board

7.      Duties of the Board in respect of CSR provisions are as follows

a.      Approve the CSR Policy for the company

b.      Board’s report shall include in the Annual Report the particulars in respect of CSR specified in Annexure of the Rules

c.       The same shall be displayed on the company’s website, if any, as per the particulars specified in Annexure.

d.      Ensure that the activities included in CSR Policy of the company are undertaken by the company.

Execution of CSR activity

8.      Preference to be given to local areas and areas surrounding the places where company operates.

9.      A company may conduct/implement its CSR programmes through Companies Trusts, Societies, or Section 8 companies operating in India, which are set up by the company or its holding or subsidiary or associate company. The Company has to specify projects to be undertaken, mode of utilization and the monitoring and reporting system

10.  If trust, society or company under section 8 is not established by companies stated above then they shall have an established track record of 3 years for undertaking similar projects.

11.  A company may collaborate with other company such that the CSR committees of respective companies are in a position to report separately on the CSR activities

Restrictions on CSR spending

12.  Activities which fall within the purview of Schedule VII (described below) of the Act only shall be eligible and considered as expended for the purpose of CSR

13.  Activities that benefit only employees and their family will not constitute part of CSR.

14.  Only such CSR activities will be taken into consideration as are undertaken within India.

15.  Activities of normal course of business does not constitute to CSR activities.

16.  Contribution of any amount directly or indirectly to any political party under section 182 of the Act, shall not be considered as CSR activities.

17.  Expenses incurred for CSR activities shall not exceed 5% of total CSR expenditure of a company is one financial year.

Consequences of non spending

18.  If the Company fails to spend the CSR amount in a financial year, the Board is required to specify the reasons in its report for not spending the amount.

Activities of CSR specified in Schedule VII

a.      eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation and making available safe drinking water:

b.      promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects;

c.       promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups;

d.      ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agro forestry, conservation of natural resources and maintaining quality of soil, air and water;

e.       protection of national heritage, alt and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional arts and handicrafts.

f.        measures for the benefit of armed forces veterans, war widows and their dependents;

g.      training to promote rural sports, nationally recognised sports, paralympic sports and Olympic sports;

h.      contribution to the P me Minister's National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women;

i.        contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government

j.        rural development projects.