APPLICABILTY:
As per Sec 135(1), Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or net profit of rupees five crore or more during the immediately preceding finnacial year fall under the ambit of CSR Provisions.
AMOUNT TO BE SPENT:
Atleast 2% of average net profits of the company made during the immediately preceding three financial years.
Also, as per Sec 135(6) any amount remaining unspent under section (5), pursuant to any ongoing project, undertaken by a company shall be within a period of thirty days from the end of the financial year transferred to a special account opened by the company for that financial year in any scheduled bank named “Unspent CSR account” and such amount to be spent by the company within the period of 3 years from the date on which it has been transferred.
SET-OFF OF EXCESS AMOUNT SPENT:
The excess amount spent in the earlier years can be set off against the required 2% CSR expenditure up to immediately succeeding three financial years subject to complaince with the conditions stipulted under rule 7(3) of the companies rules,2014. This position is applicable from 22nd January,2021 and has a prospective effect. Thus, no carry forward shall be allowed for the excess amount spent, if any , in financial year prior to FY 20-21.
NET PROFIT FOR THE PURPOSE CSR:
Net profit for the purpose of calculation for the amount to be spent on CSR activities is as per Sec 198 of the Companies Act, 2013 which is primarily PROFIT BEFORE TAX with other adjustment as refered in rule 2(h) of CSR rules.
Other Adjustment:
Net Profit before Tax should not include:
1) capital payments and reciepts.
2)Income tax.
3)Set off of past losses.
CSR COMMITTEE APPLICABILITY:
Sec 135(9) where the amount to be spent by a company under sub section (5) does not exceed fifty lakh rupees the requirement under sub section (1) for constituion of the CSR committee shall not be applicable and the functions of such committee provided under this section shall, in such cases be discharged by the board of directors of such company.
| CSR COMMITTEE COMPOSTION | |
| Listed companies | Three or more directors out of which atleast one shall be Independent Director |
| Unlisted public companies | Three or more directors out of which atleast one shall be Independent Director.
However if there is no requirement of having an independent director in the company, two or more directors |
| Private Companies | Two or more directors. No independent directors are required as mentioned in the proviso under section 135(1). |
Functions CSR Committee:
The Corporate Social Responsibility Committee shall —
- formulate and recommend the CSR policy to the Board;
- recommend the amount of expenditure to be incurred on CSR activities;
- monitor the CSR policy of the company from time to time; and
- formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy, which shall include the items as mentioned in rule 5(2) of the Companies (CSR Policy) Rules, 2014. For companies covered under Section 135(9) of the Act and not required to have CSR Committee, these functions shall be carried out by the Board itself.
CSR Committee shall meet atleast twice a year.
Rule 5(2) of the Companies (CSR Policy) Rules,2014
a) the list of CSR projects or programmes that are approved to be undertaken in areas or subjects specified in Schedule VII of the Act;
b) the manner of execution of such projects or programmes as specified in sub-rule (1) of rule 4;
c) the modalities of utilisation of funds and implementation schedules for the projects or programmes;
d) monitoring and reporting mechanism for the projects or programmes;
CSR EXPENDITURE:
1)ADMINISTRATIVE OVERHEADS:
Administrative overheads are the expenses incurred by the company for ‘general management and administration of CSR functions. However, the expenses which are directly incurred for the designing, implementation, monitoring, and evaluation of a particular CSR Project or Programme shall not be included in administrative.
Administrative expenses generally comprises of items such as employee cost, Utilities, office Supplies, legal expenses etc. However expenses which are attributable to project implementation shall be included in project cost only.
Example: Salary and training for the employees workings in the CSR division of a company, Stationary Cost, travelling expenses etc. may be included in administrative overheads. However, salary of school teachers or other staff, etc. for education-related CSR projects shall be covered under education project cost.
The maximum permissible limit for administrative overheads is 5% of Total CSR Expenditure of the company for the Financial Year.
2)CSR EXPENDITURE AS MENTIONED IN SCHEDULE VII:
Company which are required to Contribute to CSR activites can contribute according to the List given in Schedule VII of section 135 of companies act, 2013 -mentioned in Annexure-A
3)ANY OTHER PROJECT:
MEANING OF ONGOING PROJECT:
On going project has been defined under rule 2(1)(i) of the companies rule,2014 as a –
- A multi- year project, stretching over more than one financial year.
- Having a timeline not exceeding three year excluding the year of commencement.
- Includes such project that was initially not approved as multi year project but whose duration has been extended beyond one year by the board based on reasonable justification.
MAXIMUM PERMISSABLE TIME LIMIT FOR ANY ONGOING PROJECT:
As per the definition of ongoing project, maximum permissible time limit for any project shall be three Financial year excluding the financial year in which project has been commenced. i.e., (1+3) financial years.
4) NON-PERMITTED CSR ACTIVIES:
- Activities are 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 as defined in clause (k) of section 2 of the Code on Wages, 2019 (29 of 2019);
- 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.
TREATMENT OF UNSPENT ACCOUNT:
If the company spends less than the amount required to be spent under the CSR Obligation, the board shall specify the reason for not spending in the Board’s report and shall deal with the unspent amount in the following manner:
| NATURE OF UNSPENT ACCOUNT | ACTION REQUIRED | TIMELINES |
| Unspent Account pertains to ‘Ongoing Projects’ | Transfer such unspent amount to separarte bank of the company to be called ‘Unspent bank account’ | Within 30days from the end of financial year. |
| Unspent Account pertains to ‘Other than Ongoing Projects’ | Transfer unspent amount to any fund included in schedule VII of the Act. | Within 6Months from the end of financial year. |
PENAL PROVISIONS FOR NON- COMPLIANCE WITH PROVISIONS REGARDING TRANSFER OF UNSPENT AMOUNT:
The said non-compliance is a civil wrong and shall attract the following penalties:
| COMPANY | Twice the unspent amount required to be transferred to any fund included in Schedule VII of the Act or Unspent CSR Account, as the case may be or one crore rupees which ever in higher. |
| EVERY OFFICER IN DEFAULT | 1/10th of the Unspent Account required to be transferred to any Fund included in Schedule VII of the Act or Unspent CSR Account or Two lakh whichever is higher. |
The penalty does not relieve the company from the obligations under the law, and the penalty is over and above the obligated amount required to be transferred under section 135(5) or 135(6). The penalty is the consequence of abiding the law, and not an alternative for the same.
CSR IMPLEMENTATION:
MODES OF IMPLEMENTATION OF CSR:
Company can undertake CSR activities throughthe following three modes of Implementation,
1)Implementation by Company itself,
2)Implementation through eligible implementing agencies as per sub rule (1) of rule 4.
3)Implementation in collabration through one or more companies as prescribed in sub rule (4) of rule 4.
Rule 4(1) of the Companies (CSR Policy) Rules, 2014 provides the eligible entities which can act as an implementing agency for undertaking CSR activities.
These are:
- Entity established by the company itself or along with any other company – a company established under section 8 of the Act, or a registered public trust or a registered society, registered under section 12A and 80G of the Income Tax Act, 1961.
- Entity established by the Central Government or State Government – a company established under section 8 of the Act, or a registered trust or a registered society.
- Statutory bodies – any entity established under an Act of Parliament or a State legislature.
- Other bodies – a company established under section 8 of the Act, or a registered public trust or a registered society, registered under section 12A and 80G of the Income Tax Act, 1961, and having an established track record of at least three years in undertaking similar activities.
CSR REPORTING & OBLIGATIONS:
i) REPORTING OF CSR IN BOARD’S REPORT:
As per rule 8(1) of the companies (CSR Policy) Rule,2014, the Board’s Report pertaining to any financial year, for a CSR eligible company, shall include an annual report on CSR containing particulars specified in Annexure I or Annexure II.
ii) REPORTING IN CSR2 FORM:
Every Company which is required to comply with CSR policies must file the Form CSR2 with Ministry of Corporate affairs within 31st March every year.
iii) WEBSITE
As per rule 9, the Board of Directors of the company shall mandatorily disclose the following on their website if any, for Public access,
1) Composition of the CSR Committee,
2) CSR Policy,
3) Projects approved by the Board.
ANNEXURE – A
- Eradicating hunger, poverty and malnutrition, 2 [promoting health care including preventive health] and sanitation 3 [Including contribution to the Swatch Bharat Kosh set-up by the Central Government 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 centers 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 4 [including contribution to the Clean Ganga Fund set-up by the Central Government 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;
- Measures for the benefit of armed forces veterans, war widows and their dependents, 5 [Central Armed Police Forces (CAPE) and Central Para Military Forces (CPMF) veterans, and their dependents including windows];
- Training to promote rural sports, nationally recognized sports, Paralympic sports and Olympic sports;
- Contribution to the Prime Minister’s National Relief Fund or 6 [Prime Minister’s Citizen 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 Scheduled Tribes, other backward classes, minorities and women; 7
- A)Contribution to incubators or research and development projects in the field of science, technology, engineering and medicine, funded by Central Government or State Government or Public Sector Undertaking or any agency of the Central Government or State Government; and
B)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 Organization (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)].