Corporate Social Responsibility (CSR) in India has become a mandatory provision for companies crossing a certain threshold in terms of profit, turnover or net worth.
The Corporate Social Responsibility details have been defined in separate sections and the schedule of Companies Act, 2013 which introduced the provision for Corporate Social Responsibility (CSR). The Ministry of Corporate Affairs notified Section 135 and Schedule VII of the Companies Act as well as the provisions of the Companies (Corporate Social Responsibility Policy) Rules, 2014 (CRS Rules) which came into effect from 1 April 2014.
CSR in India: No Government intervention in CSR planning and implementation
As per the government policies, the very purpose of the CSR provisions is to make corporates use their corporate innovations and managerial skills in the delivery of "public goods".
Thus, the CSR in India should not be interpreted as a source of financing the resource gaps in the Government schemes. Use of corporate innovations and managerial skills in the delivery of "public goods" is at the core of CSR implementation by the companies.
Also, the Government has no role to play in the approving and implementing of CSR projects. Ministry of Corporate Affairs (MCA) provides only the broad contours within which eligible companies will formulate their CSR policies, including activities to be undertaken and implement the same in right earnest.
Here, we simplify different aspects of the Companies Act, 2013 by explaining a few points below:
- What are specific rules regarding CSR in India?
- What is Section 135 of Companies Act, 2013?
- What is Schedule VII of the Companies Act, 2013 for?
- In India, what kind of CSR spent is accounted for?
- Does CSR need to be aligned with United Nations Sustainable Development Goals (SDG)
CSR rules in India- Highlights
Below is the list of highlights of CSR rules in India as per Companies Act 2013.
CSR Rule 1: Companies with Annual Profit of Rs 5 Crore or Annual Turnover of Rs 1000 Crore or Net Worth of Rs 500 Crore must spend on CSR activities 2% of their average profit over the last three years.
CSR Rule 2:Every company falling in the ambit of CSR laws must form a CSR policy document and make it public
CSR Rule 3: The companies with prescribed CSR amount of more than Rs 50 lakh must constitute a CSR committee consisting of 3 or more directors, to plan, monitor and assess the impact of company’s CSR activities
CSR Rule 4:The CSR activities undertaken by the companies must be included in their annual report and also in their Business Responsibility Report (BRR).
CSR Rule 5: As per the CSR Rules, the provisions of CSR are not only applicable to Indian companies, but also applicable to branch and project offices of a foreign company in India.
CSR Rule 6: Expenditure on CSR does not form part of business expenditure.
CSR Rule 7: For undertaking Corporate Social Responsibility activities, the company shall not limit itself to local area or areas around it where it operates but shall select areas across the country.
CSR Rule 8: The CSR Committee shall also prepare the CSR Policy in which it includes the projects and programmes which is to be undertaken, prepare a list of projects and programmes which a company plans to undertake during the implementation year and also focus on integrating business models with social and environmental priorities and process in order to create shared value.
CSR Rule 9: In the annual CSR report the companies must include the prescribed CSR expenditure and also report total spend amount and non-spent amount in separate headers.
CSR Rule 10: In case, a company is unable to spend the minimum required expenditure, it has to give the reasons in the Board Report for non-compliance so that there are no penal provisions are attracted by it.
Section 135 of Companies Act - CSR Committee and Policy Formulation
The Section 135 of Companies Act makes provision for formation of CSR Committee for the companies who need to mandatorily spend on CSR. However, the company with prescribed CSR budget of Rs 50 lakh or less do not necessarily need to form such a committee
Further, the Section 135 also specifies that every company must have a CSR policy which shall indicate the activities to be undertaken and recommend the amount of expenditure to be incurred on the activities and monitor the CSR Policy of the company.
The Board shall take into account the recommendations made by the CSR Committee and approve the CSR Policy of the company.
Areas to spend your CSR money - Section VII of Companies Act 2013
Section VII of the Companies Act 2013 prescribes the area in which companies can do their CSR activities. Thus, Section VII also broadly defines the scope of CSR activities in India. Below are the specific CSR areas as prescribed in Section VII of the Companies Act 2013:
(i) Hunger: Eradicating hunger, poverty and malnutrition, promoting health care including preventive health care and sanitation including contribution to the ‘Swachh Bharat Kosh’ set up by the Central Government for the promotion of sanitation and making available safe drinking water.
(ii) Education and Livelihood: Promoting education, including special education and employment enhancing vocational skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects;
(iii) Health:Promotion of healthy practices, activities related to enhancing health in communities, Setting-up clinics and camps for health check-ups, providing sustainable health support to community
(iv) Gender and Social Equality: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
(v) Environment: Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water including contribution to the ‘Clean Ganga fund’ set up by the Central Government for rejuvenation of river Ganga
(vi) Art & Culture:Protection of national heritage, art 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
(vii) Army: Measures for the benefit of armed forces veterans, war widows and their dependents
(viii) Sports: Training to promote rural sports, nationally recognised sports, paralympic sports and Olympic sports;
(ix) PM Relief Fund: Contribution to the Prime 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;
(x) Incubators: Contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government;
(xi) Rural development:Projects related to rural development
(xii) Slum Development:Slum area development in urban areas
Besides the above-mentioned areas, the Companies Act, 2013 also includes a few other important areas where the CSR money can be utilised.
Contribution to a Corpus as a CSR spend
As per the CSR rules, the Contribution to Corpus of a Trust/ society/ section 8 companies etc. qualifies as CSR expenditure. However, the Contribution to these Corpus will qualify only when the Trust/ society/ section 8 companies etc is created exclusively for undertaking CSR activities or where the corpus is created exclusively for a purpose mentioned in the areas as defined in above-mentioned Schedule VII of the Act.
