Corporate Social Responsibility (CSR) has a broad contour! No wonder, what CSR spend means to corporate community is not exactly how it is interpreted in mandatory CSR provisions adopted by the Government of India.
Top CSR related queries:
- Is your spending on CSR get counted under mandatory CSR obligations?
- How prescribed CSR budget is calculated: ‘Profit After Tax’ or ‘Profit Before Tax’?
- Does corporate charity count as CSR?
- Is there any tax benefit on CSR spend?
TheCSRUniverse team gets you simplified answers to all these complex queries!
Ever since the nature of Corporate Social Responsibility (CSR) was turned from voluntary to mandatory under the Companies Act 2013, the government has started seriously taking note of actual spend by corporates on their CSR activities.
The companies are also required to focus on some specific activities towards social upliftment and community welfare programmes that are aligned to United Nation’s Sustainable Development Goals (UNSDG).
This CSR provision has led majority of Indian corporates to have organised CSR approach so that their CSR budget planning and CSR spent are in compliance with CSR policies drawn by Ministry of Corporate Affairs. Accordingly, the Business Responsibility Report (BRR) of companies also essentially carry a separate section on their CSR activities.
CSR in India - FAQs
Q: How is the prescribed CSR budget calculated for a company?
A: The prescribed CSR budget for a company is calculated as 2 % of the ‘average net profit’ of the company over last three years. Thus, the companies can exactly calculate how much they need to spend on CSR activities in a particular financial year.
Q: Whether the ‘average net profit’ criteria is ‘Net profit before tax’ or ‘Net profit after tax’?
A: Computation of net profit for calculation of prescribed CSR budget is required to be done on ‘Net Profit Before Tax’.
Q: Which companies fall in the ambit of mandatory CSR provisions?
A: Any company with net worth of Rs 500 Crore or more, or Turnover of Rs 1000 Crore or more; or net profit of Rs 5 Crore or more in ‘any financial year’ is required to spend 2 % of their average profit of last year on CSR activities.
Q: What is meaning of ‘any financial year’ for CSR obligation?
A: To check whether a company falls in the ambit of mandatory CSR provisions, "Any financial year",means any of the three preceding financial years.
Q: From which Financial Year the Corporate Social Responsibility (CSR) compliance was made mandatory in India?
A: The compliance of the provisions of CSR under the Companies Act, 2013 i.e. constitution of CSR Committee, formulation of CSR Policy, the spending of requisite amount on CSR activities came into force from April, 2014.
Q: Is the amount spent on salaries of company employees who are exclusively appointed to carry out CSR activities be counted as CSR spend?
A: As per the CSR provisions, salary paid by the companies to regular CSR staff as well as employees, who render their services for CSR will be part of Administrative overheads and should not exceed 5% of the total CSR expenditure.
Q: Whether CSR expenditure of a company can be claimed as business expenditure?
A: The amount spent by a company towards CSR cannot be claimed as business expenditure.
Q: Is there any tax benefits that can be availed under CSR provisions?
A: No. There are no specific tax exemptions for CSR expenditure as CSR related expenses do 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 are considered CSR activities find place in Schedule VII, already enjoy exemptions under different sections of the Income Tax Act, 1961.
Q: Which activities would not qualify as CSR Expenditure?
A: Below are the CSR programs/activities which are not considered as part of mandatory CSR provisions in India.
- CSR programmes that benefit only the employees of the company and their families are not considered as CSR activitiesin accordance with section 135 of the Act
- One-off events such as marathons/ awards/ charitable contribution/ advertisement/sponsorships of TV programmes etc don’t qualify as part of CSR expenditure
- Expenses incurred by companies for the fulfilment of any Act/ Statute of regulations (such as Labour Laws, Land Acquisition Act etc.) are not count as CSR expenditure under the Companies Act
- Any direct or indirect funding or contribution made to any political party or group is not considered as a CSR activity
- Activities undertaken by the company in pursuance of its normal course of business are not counted as CSR activity.
Q: Can donation of money to a trust by a company be treated as CSR expenditure of the company?
A: Yes. Contribution to Corpus of a Trust, Society or a Section 8 companies will qualify as CSR expenditure as long as :
(a) the Trust/ Society/ Section 8 company etc. is created exclusively for undertaking CSR activities or
(b) where the corpus is created exclusively for a purpose directly relatable to a subject covered in Schedule VII of the Act
Q: Is it mandatory for foreign Companies also to give reporting of their CSR activity?
A: Yes. In case of a foreign companies need to add an Annexure on CSR report while filing their balance sheet under the relevant section of Companies Act in India.
Q: Whether expenditure incurred on disaster relief qualifies for CSR or not?
A: The following disaster relief programmes are covered under CSR provisions:
- Medical aid can be covered under ‘promoting health care including preventive health care.’
- Food supply can be covered under eradicating hunger, poverty and malnutrition.
- Supply of clean water can be covered under ‘sanitation and making available safe drinking water’
Q: What are the special provisions made to incorporate COVID related work under CSR provisions?
A: Considering the large-scale support needed to fight COVID pandemic, corporates have been allowed to spend their CSR money on COVID related relief work.
Read here the complete details for COVID related work on which corporates can spend CSR money.
Further, the government recently made additional provisions to allow corporates to spend CSR money on collaborative projects on COVID-related R&D (Research and Development). For more details on the provision Click Here.
