CORPORATE SOCIAL RESPONSIBILITY (CSR)
APPLICABILITY
CSR COMMITTEE
Constitution
• CSR committee shall consist of 3 or more Directors.
• Out of that one shall be an Independent Director. (Only if Independent Director Appointment is applicable for that company)
• Private company may constitute CSR Committee with only 2 Directors.
• Constitution of CSR Committee is not required for the companies where the amount of CSR spending is not more than 50 lakh Rupees. In such companies’ duties of the CSR Committee shall be discharged by the Board of Directors of the Company.
Role of the CSR Committee
• Formulation and recommendation to the Board regarding the activities to be undertaken by the company as specified under the Act along with the Annual action plan in pursuance of the CSR Policy. Annual Action plan shall brief the matters relating to the list of projects, manner of executions, method of utilising funds, monitoring, details of need and impact assessment if any for the project. The changes or any alteration in the plan during the financial year shall also be reported to the Board.
• Recommend the amount of expenditure to be incurred on the CSR Activities.
• Monitor the CSR Policy of the company from time to time.
ROLE OF THE BOARD OF DIRECTORS
• Approve the CSR Policy of the company after considering the recommendations given by the CSR Committee.
• Ensure that the company is undertaking the CSR activities as included in the CSR Policy
• Ensure to spend 2% of the average net profits of 3 immediately preceding financial years.
• To provide reason for not spending such amount in its Boards report and also shall transfer such unspent amount to such specified funds
• To monitor the implementation of on-going projects with reference to the approved timeline and year wise allocation. etc.
CSR IMPLEMENTATION
• CSR activities can be undertaken by company itself
or
through below specified Implementing Agencies;
- Section 8 company/ registered public trust/ registered society, exempted under section 10/registered under 12A and 80G of the Income Tax Act, 1961, established by the company or along with any other company; or
- Section 8 Company/ registered trust/ registered society established by Central or State Government; or
- Any entity established under the Act of Parliament /State Legislature
- Section 8 Company/ registered public trust/ registered society, exempted under section 10/registered under 12A and 80G of the Income Tax Act, 1961, and having an established track record of at least 3 years in undertaking similar activities.
• Every entity which intends to undertake any CSR Activities shall register itself with the Central Government by filling CSR-1 with the MCA. On submission of the Form the company will receive a unique CSR Number.
• A company may also collaborate with other companies for undertaking CSR Activities in such a manner that the CSR Committees of the respective companies are in a position to report separately on such projects.
• The board of the company shall satisfy that the funds disbursed for the CSR activities have been utilised in the manner as approved by the board and CFO or the person responsible for the financial management shall certify to that effect.
CSR UNSPENT
• If a company fails to spend such specified CSR amount, such unspent amount shall be transferred to the below mentioned Funds (‘’Specified Funds”), within a period of 6 months from the closure of the financial year.
- Clean Ganga fund set up by Central Government
- Prime Ministers National Relief Fund
- Prime Ministers Central Assistance and Relief in Emergency Situations Fund (PM Cares Fund)
- Or any other fund set by Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Schedule Tribes, other backward classes, minorities and women.
• And also specify the reasons for not spending such amount in the Boards Report.
CSR EXCESS SPENT
• If a Company spends an amount in excess of the specified CSR amount, the company may set off such excess amount against the succeeding financial years spending requirements.
• The set off can be claimed up to immediately succeeding 3 financial years, subject to the condition that;
- the excess amount available for set off shall not include the surplus arising out of the CSR activities ( i.e interest received on Unspent CSR Account etc)
- the Board of the Company shall pass a resolution to give that effect.
ONGOING PROJECT
Ongoing Project means a multi-year project (not more than 3 financial years) undertaken by the Company in fulfilment of CSR Obligations or the project extended beyond one year based on the justifiable reasons.
Amount unspent on such ongoing projects shall be transferred to a separate bank account opened by the company in any scheduled bank in the name of Unspent Corporate Social Responsibility Account (“Unspent CSR Account”) within a period of 30 days from the end of the financial year. Such amount shall be spent within a period of 3 years from the date such transfer, failing which, the company shall transfer such amount to the above specified Funds established by the Central Government, within a period of 30 days from the completion of third financial year.
ACCOUNTING ASPECTS OF CSR
• Net Profit shall be calculated as per the Section 198 of the Companies Act. Net profit shall not include any profit arising from any overseas branches of the company and any dividend received from other companies in India which are covered under and complying with the provisions of the CSR.
• When CSR Activities are undertaken by company itself, the Board shall ensure that administrative overheads shall not exceed 5% of the total CSR expenditure of the company. Administrative expenses include general management and administration of CSR function of the company but not includes direct expenses incurred for designing, implementing, monitoring and evaluation of a particular CSR projects.
• Any surplus arising out of the CSR activities ( i.e interest on Unspent CSR Account etc) shall not form part of the business profit and shall be utilized in the same project or shall be transferred to the Unspent CSR Account. Such amount shall be spent for the CSR activities.
• Any CSR amount spent on the acquisition of the capital assets shall be held by the implementing agencies or beneficiary of the said CSR project, in the form of self-help groups, collectives entities or a public authority.
OTHER PROVISIONS
• Company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities.
• CSR shall not include the following;
- activities undertaken in pursuance of normal course of business of the company.
- any activity undertaken by the company outside India except for training of Indian sports personnel representing any State or Union territory at national level or India at international level;
- contribution of any amount directly or indirectly to any political party under section 182 of the Act;
- activities benefitting employees of the Company
- activities supported by the companies on sponsorship basis for deriving marketing benefits for its products or services;
- activities carried out for fulfilment of any other statutory obligations under any law in force in India;
PENALTY
• If a company is in default in complying to spend specified CSR Amount and other provisions on the Unspent and Ongoing projects requirements, the company shall be liable to a penalty of twice the amount required to be transferred to the specified funds established by the Central Government or the Unspent CSR account as the case may be or 1 crore rupees whichever is less.
• And every officer of the Company who is in default shall be liable to a penalty of 1/10th of the amount required to be transferred by the company to the Specified Funds or Unspent CSR account as the case may be or 2 Lakh Rupees whichever is less.
CSR DISCLOSURE AND REPORTING
CSR disclosure in Boards Report and CARO Report:
• The Board of Directors of the company shall disclose the contents of CSR Policy in Boards Report and place it on the company’s website.
• The Board’s report shall also disclose the composition of the Corporate Social Responsibility Committee including the Activities undertaken by the company during the financial year.
• The report shall be signed by the CSR committee Chairman and members.
• The CARO report shall also brief on the CSR ongoing projects and other than ongoing projects and their unspent amount transfers if any.
• The Annual report on CSR Activities to be included in the Board report of the Companies (including Foreign Companies) as per the format prescribed under the Act.
Impact Assessment Report applicability:
• Every company which is having a minimum average CSR obligation of Rs. 10 crore or more in the immediately preceding 3 financial years shall undertake Impact Assessment of their;
- CSR Projects having outlays of INR 1 crore or more AND
- which have been completed not less than 1 year before undertaking impact assessment.
• The impact assessment shall be conducted by an independent agency whose eligibility are decided by the Board.
• A company undertaking impact assessment may book the expenditure (incurred for impact assessment) towards CSR spending of that year, however it shall not exceed 2% of the total CSR obligation of that financial year or INR 50 lakhs whichever is higher.
Reporting through Form CSR- 2
Every company for which CSR provisions are applicable shall furnish a report on CSR in Form CSR-2 to the ROC.
ACTIVITIES COVERED UNDER CSR
Activities which may be included by companies in their CSR Policies relating to:—
• eradicating hunger, poverty and malnutrition, promoting health care including preventive health care and sanitation including contribution to the Swach Bharat Kosh set-up by the CG for the promotion of sanitation and making available safe drinking water;
• promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects;
• 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;
• 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 48[including contribution to the Clean Ganga Fund setup by the CG for rejuvenation of river Ganga;
• 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;
• measure for the benefit of armed force veterans, war widows and their dependents, Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans, and their dependents including widows;
• training to promote rural sports, nationally recognized sports, Paralympic sports and Olympics sports;
• contribution to the Prime Minister’s National Relief Fund or Prime Minister’s Central Assistance and Relief in Emergency Situations Fund (PM CARES Fund) or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Schedule Tribes, other backward classes, minorities and women;
• Contribution to incubators or research and development projects in the field of science, technology, engineering and medicine, funded by the Central Government or State Government or Public Sector Undertaking or any agency of the Central Government or State Government; and
• Contributions to public funded Universities; Indian Institute of Technology (IITs); National Laboratories and autonomous bodies established under Department of Atomic Energy (DAE); Department of Biotechnology (DBT); Department of Science and Technology (DST); Department of Pharmaceuticals; Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH); Ministry of Electronics and Information Technology and other bodies, namely Defense Research and Development Organisation (DRDO); Indian Council of Agricultural Research (ICAR); Indian Council of Medical Research (ICMR) and Council of Scientific and Industrial Research (CSIR), engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs).
• rural development projects.
• slum area development.
Explanation. - For the purposes of this item, the term ‘slum area’ shall mean any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force.
• disaster management, including relief, rehabilitation and reconstruction activities.