CSR in India - A quick overview

The Corporate Social Responsibility (CSR) was made mandatory in India for companies who go beyond a certain financial threshold.  The fine elements and broad contours of CSR has been detailed in Companies Act, 2013. The mandatory CSR provisions were made effective from April 1, 2014. Here we present an overview of CSR related laws in India:

CSR applicability

As per Section 135 of the Companies Act 2013, CSR norms are applicable to companies which have

• Net worth of Rs 500 Crore or more
• Turnover of Rs 1000 Crore or more; or
• Net profit of Rs 5 Crore or more.

What is CSR responsibility?

• The eligible companies are required to spend at least 2% of their average net profit for the immediately preceding three financial years on CSR activities.
• No specific tax exemptions have been extended to CSR expenditure per se.

What are the other key CSR requirements?

• Companies eligible for CSR activities must constitute a committee of the Board of Directors consisting of 3 or more directors (except for those which have prescribed CSR budget of less than Rs 50 lakh)
• Formulation of the Corporate Social Responsibility Policy must be done by the Board of Directors on the recommendation of the CSR Committee
• CSR Committee must plan CSR programmes towards spending the prescribed amount of expenditure on CSR activities as per CSR Policy. CSR Committee must also monitor effective implementation of CSR Policy.
• The Board of Directors are required to disclose in their report the composition of the CSR Committee and other compliance undertaken by the company and place it on the company’s website.

What if a company fails to spend the prescribed CSR amount?

• Companies will have to mention the same in their annual report
• Companies will also require to give reasons for not spending their prescribed CSR budget
• If the unspent amount deals with an ongoing project, then the said amount shall be transferred to an account: Unspent Corporate Social Responsibility Account. This has to be spent within 3 years.

Which activities are covered under CSR?

• Promotion of Education.
• Eradication of Extreme Hunger and Poverty.
• Gender Equity and Women Empowerment.
• Combating HIV-AIDS, Malaria and Other Diseases.
• Environmental Sustainability.
• Social Business Projects.
• Contribution to Prime Minister’s Relief Fund.
• Contribution to PM CARES which has been primarily formed to combat COVID crisis.
• Research and Development projects related to COVID.

Which activities are not covered under CSR?

• The CSR projects or programs or activities that benefit only the employees of the company and their families shall not be considered as CSR activities in accordance with section 135 of the Act.
• One-off events such as marathons/ awards/ charitable contribution/advertisement/sponsorships of TV programmes etc. would not be qualified as part of CSR expenditure.
• Expenses incurred by companies for the fulfillment of any Act/ Statute of regulations (such as Labour Laws, Land Acquisition Act etc.) would not count as CSR expenditure under the Companies Act.
• Contribution of any amount directly or indirectly to any political party shall not be considered as a CSR activity.
• Activities undertaken by the company in pursuance of its normal course of business.