Corporate Social

Responsibility
 CSR IN COMPANIES ACT, 2013

Section 135

Applicability
Every company having
net worth of Rs 500 crore or more, or
turnover of Rs 1000 crore or more
or a net profit of Rs 5 crore or more ;
during any financial year

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Companies (Corporate Social Responsibility Policy) Rules, 20I4

Enhanced Applicability:

holding or subsidiary company;

a foreign company defined under clause (42) of
section 2 of the Act having its branch office or project
office in India

which fulfill the criteria u/s 135 of the Act

The net worth, turnover or net profit of a foreign

company shall be computed in accordance with B/S
and P&L A/c of such company prepared in accordance
with the provisions of the Act. 3
 CSR SPEND IN FINANCIAL YEAR

At least 2% of the average net profits of the company made during

the three immediately preceding financial years.

The section postulates that net profit shall be calculated in

accordance with the provisions of section 198.

Company shall give preference to the local area and areas around it
where it operates, for spending the amount earmarked for CSR
activities

Where the company fails to spend such amount, the Board shall, in its
report, specify the reasons for not spending the amount.

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Companies (Corporate Social Responsibility Policy) Rules, 20 I 4

CSR EXPENDITURE
The CSR projects or programs or activities undertaken in India
only shall amount to CSR expenditure.

Activities undertaken in normal course of business of company

shall not be included in CSR spend (eg. The business of co. is to
run educational institution)

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 CSR Committee- Constitution
CSR Committee shall consist of 3 or more directors, with at
least 1 ID.
Companies (CSR Policy) Rules 2014
S.No. Type of Co. CSR Committee
1 A pvt. co. having only 2 with 2 such directors
directors on its Board
2 Unlisted Co./ Pvt Co. Without such ID
Which is not required
to appoint ID
3 Foreign company one person (i.e. person resident in India
authorised to accept on behalf of the company
service of process any notices or other
documents served on the company) and another
person shall be nominated by the foreign
company
The Board's report is required to disclose the composition of
the CSR Committee 6
 CSR IN COMPANIES ACT, 2013

CSR Policy

The CSR committee shall formulate and recommend to the

Board, a CSR Policy.
The policy shall indicate the activities to be undertaken by the
company as specified in Schedule VII;
The CSR Committee shall recommend the amount of expenditure
to be incurred on the activities referred in CSR Policy
The CSR Policy of the company shall be monitored by
CSRcommittee from time to time.

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 CSR IN COMPANIES ACT, 2013

CSR Policy

The Board of every company shall,

(a) after taking into account the recommendations made by the
CSR Committee,
(i) approve the CSR Policy for the company
(ii)disclose contents of such Policy in its report
(iii)place it on the company's website, if any,
in such manner as may be prescribed;

(b) ensure that the activities as are included in CSR Policy of the
company are undertaken by the company

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 CSR IN COMPANIES ACT, 2013

SCHEDULE VII

Activities which may be included by companies in their Corporate Social

Responsibility Policies:-

(i) ID eradicating hunger, poverty and malnutrition, promoting

preventive health care and sanitation and making available safe
drinking water:
(ii) promoting education, including special education and employment
enhancing vocation skills especially among children, women,
elderly, and the differently abled and livelihood enhancement
projects;
(iii)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;
(iv)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; 9
 CSR IN COMPANIES ACT, 2013
V. 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;
V. measures for the benefit of armed forces veterans, war widows
and their dependents;
VI. training to promote rural sports, nationally recognised sports,
para olympic sports and Olympic sports;
V. 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 Caste, the
Scheduled Tribes, other backward classes, minorities and women;
VI. contributions or funds provided to technology incubators located
within academic institutions which are approved by the Central
Government
VII. rural development projects.
MCA Clarification vide General Circular 21/2014 Dt. 18th June,2014
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Companies (Corporate Social Responsibility Policy) Rules, 2014

Every company which ceases to be a company covered under

sub_section (1) of section 135 of the Act (i.e. net worth of Rs
500 crore or more, or turnover of Rs 1000 crore or more or a
net profit of Rs 5 crore or more) for three consecutive
financial years shall not be required to

(a) constitute a CSR Committee; and

(b) comply with other provisions

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Companies (Corporate Social Responsibility Policy) Rules, 20 I 4

Implementation:

CSR activities may be undertaken through

a registered trust or
a registered society or
A company established by the company or its holding or
subsidiary or associate company under section 8 of the
Act or otherwise.
MCA Clarification vide General Circular 21/2014 Dt. 18th
June,2014
Registered Trust
1. Registered with Registrar of Trust in the State,
2. Where no Registrar of Trust in State, Registered with IT
Authority

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Companies (Corporate Social Responsibility Policy) Rules, 20 I 4

Implementation:
Trust/Society
o Such trust, society or co. (other than unrelated to the
company)shall have an established track record of 3 years in
undertaking similar programs or projects;
o the co. has to specify the project or progams to be undertaken
through these entities, and;
o also the modalities of utilization of funds on such projects and
programs and the monitoring and reporting mechanism

Collaboration with other company/(ies) for undertaking projects or

programs or CSR activities is permitted.

The CSR projects or programs or activities that benefit only the

employees of the co. and their families shall not be considered for
CSR

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Companies (Corporate Social Responsibility Policy) Rules, 20 I 4

Implementation:
Building CSR capacities

Companies may build capacities of

their own personnel;
their Implementing agencies

through Institutions with established track records of at least 3

financial years but such expenditure shall not exceed 5% of total
CSR expenditure of the co. in one FY.

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Companies (Corporate Social Responsibility Policy) Rules, 20 I 4

Monitoring Process
i. The CSR Committee shall institute transparent monitoring
mechanism for implementation of projects,

ii. The CSR Policy shall include monitoring mechanism.

iii. The CSR policy shall specify that the surplus arising out of the
CSR projects or programs or activities shall not form part of
the business profit of a company

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Companies (Corporate Social Responsibility Policy) Rules, 20 I 4

CSR Reporting:

Boards Report of a company pertaining to a FY commencing

on or after the 1st April, 2014 shall include an annual report on
CSR.

The BoDs of the co. shall disclose contents of CSR policy in its
report and the same shall be displayed on the companys
website, if any.

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 Issue 1
From which FY CSR Expenditure & Reporting
Begins?
Response
Companies have to spend the amount on CSR
activities as required by section 135 during the
F.Y. 2014-15 and Reporting of the same would
be in 2015 Boards Report or otherwise state
the justification for the same in Board Report.
Average Net Profit of 3 preceding F.Y. will
include F.Y 13-14, 12-13,11-12.
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 Issue II: Any of the three preceding financial years has been
clarified vide circular dated June 18, 2014 leads to further
ambiguity.
As per the clarification, any financial year referred under sub-
section (1) of section 135 of the Act read with Rule 3(2) of CSR
Rules, 2014 implies any of the three preceding financial years.
Confusion: Section 135(1) requires every company to do CSR
activities which are falling in the specified category in any financial
year.
Rules 3(2) provides that in case a company which ceases to be
covered under section 135(1) for three consecutive financial years
shall not be required to constitute CSR Committee and comply with
provision of 135 (2) to (5).
Now, as per the clarification, in case, a company which meets the
criteria in preceding three financial years (i.e. 2011-12, 12-13, 13-
14) but does not meet the criteria in financial year 2014-15 will
need to make CSR Committee and contribution for F.Y 2014-15.
It needs clarification. 18
 Issue 3
The concept of CSR is based on Comply or Explain. What if
company does not comply nor explain?

Response
Disclosure has to be made in boards report u/s 134
Penalty u/s 134(8)
Co. Fine which shall be not less than Rs. 50000 but not more
than Rs. 2500000.
Every officer Imprisonment extending upto 3 years or fine
not less than Rs. 50000 but not more than Rs. 500000.

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 Further, in case a company has not spent the amount
required under the law on corporate social activities and if it
has explained the same in the Directors Report, its legal
responsibility in this regard stands discharged. (section 135
(5)

Also, since it is answerable to all the stakeholders, the

company can only escape by explaining the genuine problem
and which is not possible every year.

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 Issue 4
Will constitution of CSR Committee be applicable to holding &
subsidiary companies?
Response
Rule 3(1) of Companies (CSR Policy) Rules, 2014:
Every company;
its holding or subsidiary
If fulfills the criteria specified in sub-section (l) of section 135 of
the Act shall comply with the provisions of section 135 of the
Act and these rules.
So, the criteria needs to be fulfilled by individual company.

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 Issue 5
Should a section 8 company also do CSR?

Response
If section 8 companies are falling within the criteria provided
under section 135(1), these would be required to undertake
CSR activities.

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 Issue 5
Where CSR activities lead to profits then what about
such surplus?

Response
The surplus arising out of the CSR projects or
programs or activities shall not form part of the
business profit of a company. The same shall be
specified in CSR Policy. Ideally it should be rolled over
to CSR Corpus.

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Issue 6

What is the treatment of expenses incurred beyond that

of mandated CSR spend
There are instances of CSR activities that are in the
project mode which require fund beyond that of the
mandated 2 %.
Will such expense, where incurred, be counted in
subsequent Financial years as part of CSR expenditure.

Reply:
This is an ongoing query. The MCA is in the process
of arriving at a decision regarding the treatment of
such expenditure and will notify such as and when it is
taken.
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Issue 7
CSR Contribution in kind
Whether CSR contribution permitted in kind, such as for a
company engaged in books whether it could donate books, for a
company engaged in computer software, whether it could
distribute the software to the needy, whether a company can
donate land for say building a old age home

Reply:

Needs clarification.

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Issue 8
As per Foreign Contribution Regulation Act, 2010 (FCRA)
Contribution with respect to CSR received by an NGO from Indian
Subsidiary which is foreign owned will be deemed to be receiving
the same from Foreign Source, thus requiring approval and
Registration of Ministry of Home affairs.

Reply

for smooth CSR Contribution, amendment is required in FCRA to

exclude CSR Contribution from the meaning of foreign
contribution under Companies Act, 2013.

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 Issue 9
If a company having turnover of more than Rs. 1000
crores or more but has incurred loss during preceding
three the F.Y then whether such company is required to
comply with the provisions of the section 135
Companies Act, 2013?

Response
As per the literal interpretation the answer is yes.
However, such company can provide the justification
for not spending the amount on CSR activity in its
Board Report
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 Issue 10
There are certain corporate groups who run hospitals
and educational institutions, will this be considered as
CSR?

If the hospitals and educational institutes are part of

the business activity, they would not be considered as
CSR Activity. However if some charity ids done by
these hospitals or educational institutes, without any
statutory obligation to do so, then it can be considered
as CSR Activity.

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 Issue 11
whether the following activities can be considered as
CSR activity of the Company, as per Companies Act,
2013.
Rain water harvesting within factory premises where
the company does not use this water.
Renewable/ solar energy installations within factory
premises for business consumption where the company
chooses solar energy in the interest of the environment
even though it is more expensive than grid electricity.

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Issue 12
Since it has been indicated in the rules that all CSR
activities should be in project/programme mode, will
intermittent, one-off events such as marathons
/awards/advertisements /sponsorships of TV
programmes, etc. be part of CSR expenditure?

Clarified through Circular no. 21/2014 dated June 18,

2014 as
CSR activities should be undertaken by the companies in
project/programme mode (as referred in Rule 4(1) of
Companies CSR Rules, 2014). One off events as stated
above would not be qualified as part of CSR expenditure.

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Issue 13
Will expenses incurred for the fulfillment of any Act/
Statute of Regulation count as CSR expenditure?

Clarified through Circular no. 21/2014 dated June 18,

2014 as
No, expenses incurred by companies for fulfilment of
any Act/Statute of regulations (such as Labour Laws,
Land Acquisition Act, etc.) would not count as CSR
expenditure under the Companies Act.

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 Issue 14
Should the salaries of the staff employed by the company
for overseeing and directing CSR progammes/ projects/
activities be counted as CSR expenditure? Also, can the
efforts of employees of the company who volunteer for CSR
work be included in CSR expenditure?
Clarified through Circular no. 21/2014 dated June 18, 2014
as
Salaries paid by the companies to regular CSR staff as
well as to volunteers of the companies (in promotion to
companys time/hour spent specifically on CSR) can be
factored into CSR project cost as part of the CSR
expenditure.
Further Rule 4(6), provides that such expenditure shall
not exceed five percent of total CSR expenditure of the
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company in one financial year.
Thank You

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