Which companies are required to follow the provisions of Corporate Social Responsibility ?
As per Section 135 (1) of the Companies Act 2013
Every company having
i) net worth of rupees five hundred crore or more, or
(Note: Net worth defined in section 2(57) of the Act )
ii) turnover of rupees one thousand crore or more or
(Note Turnover defined under section 2(91) of the Act )
iii) a net profit of rupees five crore or more
(Net profit’ is defined under rule 2(1)(f) of Companies (Corporate Social Responsibility Policy) Rules. 2014)
during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.
What is the effective date for following the provisions of Corporate Social Responsibility ?
As per Notification effective date for following the provisions of Section 135 and Schedule VII is 01.4.2014
What is the meaning of Corporate Social Responsibility for Companies ?
As per Companies (Corporate Social Responsibility Policy) Rules. 2014 on 27.02.2014
“Corporate Social Responsibility (CSR)” means and includes but is not limited to
(i) Projects or programs relating to activities specified in Schedule VII to the Act or
(ii) Projects or programs relating to activities undertaken by the board of directors of a company (Board) in pursuance of recommendations of the CSR Committee of the Board as per declared CSR policy of the company subject to the condition that such policy will cover subjects enumerated in Schedule VII of the Act.
Whether there is a need to disclose composition of Corporate Social Responsibility committee ?
As per Section 135(2) of the Companies Act
The Board’s report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee.”
What are the functions of Corporate Social Responsibility committee ?
As per Section 135(3) of the Companies Act :-
The Corporate Social Responsibility Committee shall,—
(a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII;
(b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and
(c) monitor the Corporate Social Responsibility Policy of the company from time to time.
What is the responsibility of Board of Directors in respect of Corporate Social Responsibility ?
As per Section 135(4) of the Companies Act :-
The Board of every company referred to in 135(1) shall,—
(a) after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company’s website, if any, in such manner as may be prescribed; and
(b) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.
As per Section 135(5) of the Companies Act :-
The Board of every company referred to in 135(1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy:
Provided that the 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:
Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount.
What is the meaning of ” Average net profit ” as referred in Section 135 (5) for Corporate Social Responsibility Policy ?
As per Explanation to Section 135 of Companies Act 2013 “average net profit” shall be calculated in accordance with the provisions of section 198 of Companies Act 2013
What are the Rules notified for Corporate Social Responsibility by ministry of Corporate Affairs ?
Rules Notified are: Companies (Corporate Social Responsibility Policy) Rules. 2014 on 27.02.2014
What are the activities spending on which will constitute Corporate Social Responsibility ?
Activities specified in Schedule VII
What is the maximum amount the company can spend on administrative overheads under Corporate Social Responsibility ?
As per the Rule Notified Companies (Corporate Social Responsibility Policy) Rules. 2014 on 27.02.2014 and Amended Companies (Corporate Social Responsibility Policy) Amedment Rule 2014 Dated 12.09.2014
Company can build CSR capacity of its own personnel but such expenditre including administrative overhead shall not exeed 5% of Total CSR Expenditure of the company in one financial year
Can the Company do Corporate Social Responsibility through its Subsidiary Company ?
As per Rule Notified Companies (Corporate Social Responsibility Policy) Rules. 2014 on 27.02.2014 read with Rule Companies (Corporate Social Responsibility Policy) Amendment Rules, 2015 Dated 19.01.2015
The Board of a company may decide to undertake its CSR activities approved by the CSR Committee, through registered Tust or a registered society or a company established under section 8 of the Act by the company, either singly or alongwith its holding or subsidiary or associate company, or alongwith any other company or holding or subsidiary or associate company of such other company, or otherwise
What is the Format for the Annual report on CSR activites to be included in the Board Report ?
Format is given in Annexure to Companies (Corporate Social Responsibility Policy) Rules. 2014 on 27.02.2014
Whether expenditure on Corporate Social Responsibility is allowed as Deduction under Income Tax Act ?
Ans.: As per the Explanation 2 to section 37(1) inserted by the Finance (No. 2) Act, 2014 w.e.f. 1-4-2015, any expenditure incurred by an assessee on the activities relating to CSR referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.
What are the Clarifications issued on Corporate Social Responsibility Policy by ministry of Corporate Affairs ?
GENERAL CIRCULAR NO.21/2014 [F.NO.05/01/2014-CSR], DATED 18-6-2014
This Ministry has received several references and representation from stakeholders seeking clarifications on the provisions under Section 135 of the Companies Act, 2013 (herein after referred as ‘the Act’) and the Companies (Corporate Social Responsibility Policy) Rules, 2014, as well as activities to be undertaken as per Schedule VII of the Companies Act, 2013. Clarifications with respect to representations received in the Ministry on Corporate Social Responsibility (hereinafter referred as (‘CSR’) are as under:-
| (i) | The statutory provision and provisions of CSR Rules, 2014, is to ensure that while activities undertaken in pursuance of the CSR policy must be relatable to Schedule VII of the Companies Act 2013, the entries in the said Schedule VII must be interpreted liberally so as to capture the essence of the subjects enumerated in the said Schedule. The items enlisted in the amended Schedule VII of the Act, are broad-based and are intended to cover a wide range of activities as illustratively mentioned in the Annexure. | |
| (ii) | It is further clarified that 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 such as marathons/awards/charitable contribution/advertisement/sponsorships of TV programmes etc. would not be qualified as part of CSR expenditure. | |
| (iii) | 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. | |
| (iv) | Salaries paid by the companies to regular CSR staff as well as to volunteers of the companies (in proportion to company’s time/hours spent specifically on CSR) can be factored into CSR project cost as part of the CSR expenditure. | |
| (v) | “Any financial year” referred under Sub-Section (1) of Section 135 of the Act read with Rule 3(2) of Companies CSR Rule, 2014, implies ‘any of the three preceding financial years’. | |
| (vi) | Expenditure incurred by Foreign Holding Company for CSR activities in India will qualify as CSRspend of the Indian subsidiary if, the CSR expenditures are routed through Indian subsidiaries and if the Indian subsidiary is required to do so as per section 135 of the Act. | |
| (vii) | ‘Registered Trust’ (as referred in Rule 4(2) of the Companies CSR Rules, 2014) would include Trusts registered under Income Tax Act 1956, for those States where registration of Trust is not mandatory. | |
| (viii) | Contribution to Corpus of a Trust/ society/ section 8 companies etc. will qualify as CSR expenditure as long as (a) the Trust/ society/ section 8 companies etc. is created exclusively for undertaking CSRactivities or (b) where the corpus is created exclusively for a purpose directly relatable to a subject covered in Schedule VII of the Act. |
2. This issues with the approval of Competent Authority.
ANNEXURE
| SI. No. | Additional items requested to be included in Schedule VII or to be clarified as already being covered under Schedule VII of the Act | Whether covered under Schedule VII of the Act | ||
| 1. | Promotion of Road Safety through CSR: | (a) | Schedule VII (ii) under “promoting education”. | |
| (i) | (a) Promotions of Education, “Educating the Masses and Promotion of Road Safety awareness in all facets of road usage, | (b) | For drivers training etc. Schedule VII (ii) under “vocational skills”. | |
| (b) Drivers’ training, | (c) | It is establishment functions of Government (cannot be covered). | ||
| (c) Training to enforcement personnel, | (d) Schedule VII (ii) under “promoting education”. | |||
| (d) Safety traffic engineering and awareness through print, audio and visual media” should be included. | ||||
| (ii) | Social Business Projects : | (ii) Schedule VII (i) under ‘promoting health care including preventive health care.’ | ||
| “giving medical and Legal aid, treatment to road accident victims” should be included. | ||||
| 2. | Provisions for aids and appliances to the differently- able persons – ‘Request for inclusion | Schedule VII (i) under ‘promoting health care including preventive health care.’ | ||
| 3. | The company contemplates of setting up ARTIIC (Applied Research Training and Innovation Centre) at Nasik. Centre will cover the following aspects as CSR initiatives for the benefit of the predominately rural farming community: | Item no. (ii) of Schedule VII under the head of “promoting education” and “vocational skills” and “rural development”. | ||
| (a) | Capacity building for farmers covering best sustainable farm management practices. | (a) | “Vocational skill” livelihood enhancement projects. | |
| (b) | Training Agriculture Labour on skill development. | (b) | “Vocational skill” | |
| (c) | Doing our own research on the field for individual crops to find out the most cost optimum and Agri-ecological sustainable farm practices. (Applied research) with a focus on water management. | (c) | ‘Ecological balance’, ‘maintaining quality of soil, air and water’. | |
| (d) | To do Product Life Cycle analysis from the soil conservation point of view. | (d) | “Conservation of natural resource” and ‘maintaining quality of soil, air and water’. | |
| 4. | To make “Consumer Protection Services” eligible under CSR. (Reference received by Dr. V.G. Patel, Chairman of Consumer Education and Research Centre). | Consumer education and awareness can be covered under Schedule VII (ii) “promoting education”. | ||
| (i) | Providing effective consumer grievance redressal mechanism. | |||
| (ii) | Protecting consumer’s health and safety, sustainable consumption, consumer service, support and complaint resolution. | |||
| (iii) | Consumer protection activities. | |||
| (iv) | Consumer Rights to be mandated. | |||
| (v) | all consumer protection programs and activities” on the same lines as Rural Development, Education etc. | |||
| 5. | (a) | Donations to IIM [A] for conservation of buildings and renovation of classrooms would qualify as “promoting education” and hence eligible for compliance of companies with Corporate Social Responsibility. | Conservation and renovation of school buildings and classrooms relates to CSRactivities under Schedule VII as “promoting education”. | |
| (b) | Donations to IIMA for conservation of buildings and renovation of classrooms would qualify as “protection of national heritage, art and culture, including restoration of buildings and sites of historical importance” and hence eligible for compliance of companies with CSR. | |||
| 6. | Non Academic Technopark TBI not located within an academic Institution but approved and supported by Department of Science and Technology. | Schedule VII (ii) under “promoting education”, if approved by Department of Science and Technology. | ||
| 7. | Disaster Relief | Disaster relief can cover wide range of activities that can be appropriately shown under various items listed in Schedule VII. For example, | ||
| (i) | medical aid can be covered under ‘promoting health care including preventive health care.’ | |||
| (ii) | food supply can be covered under eradicating hunger, poverty and malnutrition. | |||
| (iii) | supply of clean water can be covered under ‘sanitation and making available safe drinking water’. | |||
| 8. | Trauma care around highways in case of road accidents. | Under ‘health care’. | ||
| 9. | Clarity on “rural development projects” | Any project meant for the development of rural India will be covered under this. | ||
| 10. | Supplementing of Govt. schemes like mid-day meal by corporates through additional nutrition would qualify under Schedule VII. | Yes. Under Schedule VII, item no. (i) under ‘poverty and malnutrition’. | ||
| 11. | Research and Studies in the areas specified in Schedule VII. | Yes, under the respective areas of items defined in Schedule VII. Otherwise under ‘promoting education’. | ||
| 12. | Capacity building of government officials and elected representatives – both in the area of PPPs and urban infrastructure. | No. | ||
| 13. | Sustainable urban development and urban public transport systems | Not covered. | ||
| 14. | Enabling access to, or improving the delivery of, public health systems be considered under the head “preventive healthcare” or “measures for reducing inequalities faced by socially & economically backward groups”?~ | Can be covered under both the heads of “healthcare” or “measures for reducing inequalities faced by socially & economically backward groups”, depending on the context. | ||
| 15. | Likewise, could slum re-development or EWS housing be covered under “measures for reducing inequalities faced by socially & economically backward groups”? | Yes. | ||
| 16. | Renewable energy projects | Under ‘Environmental sustainability, ecological balance and conservation of natural resources’, | ||
| 17. | (i) | Are the initiatives mentioned in Schedule VII exhaustive? | (i) & (ii) Schedule VII is to be liberally interpreted so as to capture the essence of subjects enumerated in the schedule. | |
| (ii) | In case a company wants to undertake initiatives for the beneficiaries mentioned in Schedule VII, but the activity is not included in Schedule VII, then will it count (as per 2(c)(ii) of the Final Rules, they will count)? | |||
| 18. | US-India Physicians Exchange Program – broadly speaking, this would be program that provides for the professional exchange of physicians between India and the United States. | No. | ||
What is the Composition of High Level Committee constituted by the Govt of India for monitoring the progress of implementation of Corporate Social Responsibility (CSR) policies by companies ?
GENERAL CIRCULAR 1/2015 [F.NO. 05/09/2014-CSR], DATED 3-2-2015
Undersigned has been directed to state that a High Level Committee has been constituted under the Chairmanship of Shri Anil Baijal, Former Secretary, Govt. of India to suggest measures for monitoring the progress of implementation of Corporate Social Responsibility (CSR) policies by companies at their level and by the Government under the provisions of section 135 of the Companies Act, 2013 and Rules thereunder.
2. The composition of the High Level Committee is as under:
| Sr. | Name | Role |
| i. | Shri Anil Baijal Former Secretary to Govt. of India | Chairperson |
| ii. | Prof. Deepak Nayyar Professor (Emeritus), Jawaharlal Nehru University, New Delhi | Member |
| iii. | Shri Onkar S Kanwar Chairman & Managing Director, Apollo Tyres Ltd. | Member |
| iv. | Shri Kiran Karnik Former President-NASSCOMM, New Delhi | Member |
| v. | Secretary, Department of Public Enterprises (Represented by an officer not below the rank of Joint Secretary) | Member |
| vi. | Additional Secretary (*) Ministry of Corporate Affairs | Member-Convener |
(*) Economic Adviser, MCA will discharge the responsibility in the absence of Additional Secretary, MCA.
3. Terms of Reference of the Committee are as under:
| (i) | To recommend suitable methodologies for monitoring compliance of the provisions of section 135 (Corporate Social Responsibility) of the Companies Act, 2013 by the companies covered thereunder. | |
| (ii) | To suggest measures to be recommended by the Government for adoption by the companies for systematic monitoring and evaluation of their own CSR initiatives. | |
| (iii) | To identify strategies for monitoring and evaluation of CSR initiatives through expert agencies and institutions to facilitate adequate feedback to the Government with regard to efficacy of CSRexpenditure and quality of compliance by the companies. | |
| (iv) | To examine if a different monitoring mechanism is warranted for Government Companies undertakingCSR, and if so to make suitable recommendations in this behalf. | |
| (v) | Any other matter incidental to the above or connected thereto. |
4. The Committee shall submit its report within Six months from the date of holding of its first meeting.
5. Ministry of Corporate Affairs and Indian Institute of Corporate Affairs (IICA) shall jointly provide secretarial and technical support to the Committee. The Indian Institute of Corporate Affairs will render the necessary logistic support to the High Level Committee.
6. This issues with the approval of Hon’ble Union Minister for Corporate Affairs.
What is the Report of the high level committee for monitoring of the implementation of corporate social responsibility policies. ?