Corporate Social Responsibility

Corporate Social Responsibility

Corporate social responsibility is a process of building environmental and social concerns into a company’s daily planning, activities, goals and operations. A concentrated idea that a business can make the world a better place and they can reduce their negative social and environmental footprint on the world is highlighted over here. The four types of Corporate Social Responsibility are philanthropy, environment conservation, diversity and labuor practices, and volunteerism.  It is simple concept whereby organizations consider the interests of society by taking responsibility for the impact of their activities on customers, employees, shareholders, communities and the environment as a whole.

CSR Applicability:

Every Company having a net worth of more than 500 crore or more, turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall form a CSR Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.

CSR Expenditure:

The Board of every Company should ensure that in every financial year, they must spend at least 2% of the average net profits the company made during the three immediately preceding financial years, in pursuance of its CSR Policy.

CSR Activities: 

Schedule VII of the Companies Act 2013, indicate the list of probable activities which may be included by companies in their CSR Policies:

  1. Activities for eradicating hunger, poverty, and malnutrition, promoting health care
  2. Activities to promote education including special education and employment
  3. Activities relating to promotion of gender equality and women empowerment
  4. Activities ensuring environmental sustainability, ecological balance and protection of flora and fauna
  5. Programmes to protect natural heritage, art and culture
  6. Measures for benefiting armed forces, war widows and dependents
  7. Trainings to promote rural and nationally recognised sports
  8. Contribution to Prime Minister’s National Relief Fund 
  9. Contribution to incubators funded by Central or State Government or any agency or Public Sector Undertaking of Central or State Government
  10. Rural & Slum area development projects
  11. Activities related to Disaster Management including relief, rehabilitation and reconstruction activities

CSR Amendments:

Amendment Rule 2021came into effect on 22 January 2021, as the same has been published in the official gazette on the same date and are applicable on the financial year 2020-21.

  1. Quantum of spending (Sec 135-5): Now every company which has not completed the period of 03 Financial years will have to spend 2% during such preceding Financial Years.
  2. CSR Spending(Section 135-7): CSR spending made Mandatory from Voluntary. Hence now it is Spend or penalized.
  3. Consequence of non-transfer in aforesaid manner(Sec 135-5): Company liable to pay penalty twice the amount of default or Rs. 1 cr, whichever is less. And every officer liable to pay penalty @ 10% of default or Rs. 2 lacs, whichever is less
  4. CSR Committee (Sec 135-9): CSR Committee not required, if amount to be spent by a company does not exceed fifty lakh rupees. In such cases Board shall discharge all functions of CSR Committee.

Activities not included in CSR:

  1. Activities undertaken in normal course of business
  2. Any activity undertaken by the company outside the India
  3. Contribution of any amount directly or indirectly to any political party under section 182 of the Act.
  4. Activities that significantly benefit the employees of the company as defined in clause (k) of section 2 of the Code on Wages, 2019 (29 of 2019)
  5. Activities supported by the companies on sponsorship basis for deriving marketing benefits for its products or services
  6. Activities carried out for the fulfilment of any other statutory obligations under any law  in force in India

Treatment of Unspent amount:

If the Company fails to spend 2% of the Average net profit, then the following shall be the treatment of the unspent amount.

  1. If unspent amount is not relating to an ongoing project, the Board shall, in its report,  specify the reasons for not spending the amount; and

unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year

  1. If unspent amount is relating  to an ongoing project, then the amount is to be transferred within a period of thirty days from the end of the financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account
  2. If fails to spend on the ongoing project and fails to spend in 3 years, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year