Wednesday, 2 April 2014

Corporate Social Responsibility (CSR)

Corporate Social Responsibility (CSR)
Section 135 of the Companies Act 2013 and The Rules under the Act.

        Sr. No.
Companies Act 2013
Writer’s Views
CSR means, carrying on

-       programs or projects relating to activities specified in Schedule VII to the act or

-       those activities specified in the CSR Policy of the Company prepared in line with the Schedule VII activities.

In short CSR does not consider the activities that are not falling under Schedule VII of the Act.

Criteria to be fulfilled:

Net worth>=INR 500 Crores OR

        Turnover>= INR 1000 Crores OR
             Net Profit >=INR 5 Crores

Net Profit (NP) means:

NP as per its financial statement prepared in accordance with applicable provisions of the Companies Act 2013.

However it does not include:

     a.     any profit arising from Overseas Branch or branches of the Company whether operated as a Separate Company or Otherwise.

    b.    Dividend received from other companies in compliance with the provisions of sec 135 of the act.

Re-Calculation of Net Profit:

Indian Company: not required if the profits were calculated as per the applicable provisions of the act

Foreign Company: required to be re-calculated in terms of sec 381 (1)(a) read with Sec 198 of the Act.

-    The financials of the Company as on March 31, 2014 shall be taken in to consideration while analyzing the fulfilment of the criteria.

-    If the Company does not fulfil these criteria for 3 consecutive years after the Section being applicable to the Company then the Company need not spend such amount until the company fulfils the required criteria again.

Does Branch include subsidiary company also?
On fulfilling the Criteria the CSR Committee is to be formulated.

·                      Composition of the Committee:

Ø  Private Company :  Min 2 Directors

Ø  Unlisted Public Company :  Min 3 Directors

Ø  Listed Company:  Min 3 Directors, out of which atleast 1 should be an Independent Director

Ø  Foreign Company:  Min 2 Directors

(1 shall be a person as specified u/s 380 (1)(d) ie. Resident of India and the other person shall be nominated by the foreign company)

If the Private Company already has 3 directors then, the committee shall also have a minimum of 3 directors thereby fulfilling the requirement of the Act.

Similarly if a Company has an independent director on the board voluntarily, then the CSR Committee shall have an independent director as a member.
Role of Committee:

-          Formulation of CSR Policy for Board’s approval

-          The Committee to recommend the amount of expenditure for carrying on the activities.

-          The CSR Committee to institute a transparent monitoring mechanism for monitoring the CSR activities and policy.

-          A responsibility statement assuring the compliance of the policy.

Even if the approved expenditure is unutilised, the same cannot be considered as income for the company.
Role of Board:

-          To consider and approve the proposed CSR Policy

-          To ensure spending such amount on implementation of CSR activities. [Atleast 2% of previous 3 years average profits (as calculated under Sec 198)]

-          To make the disclosures said in point no. 6.


1.       If the specified 2% amount is not spent during the financial year, can a provision be made in the financial statement towards the unspent amount? (AS 29)?

2.       Depending on the nature of activity can the expenditure be classified as capital expenditure?

3.       Previously, voluntary CSR expenses were allowed to be tax deductable.  Therefore will the same continue even now?

4.       Will Central Board of Direct Taxes (CBDT) give tax breaks on CSR spending?


Board’s Report:

         The Board’s report shall contain the composition of the CSR Committee.

     If the Company fails to spend the 2% amount, then such failure to spend the specified amount (min 2% of the 3 yr average net profits) shall be reported along with reasons in the Boards’ Report

Annual Report: The CSR report to be included in the Annual Report.

§   Indian Company: Board report to contain an annual report on CSR activities in the specified format as an annexure

§        Foreign Company:  The balance sheet shall contain a report on CSR activities as an annexure.

Company’s Website:

The Company shall display the CSR Policy on the Company’s website along with the CSR initiatives undertaken by the Company.

The Act has not specified any penal provision if the company fails to spend the said amount on the CSR activities.
CSR Activities

-       All those activities covered under Schedule VII.

-   If the Company or its holding or subsidiary or associate company has established a Sec 8 Company or Registered Trust/ Society: then the company may carry on the activities through the Trust, Society or a Company.

-      If the Company is contributing to a Sec 8 Company / Trust /Society not established by the Company: then such trust or society or company shall have an established track record of 3 years in undertaking similar programs or projects.

The Company Shall

o  Specify the projects or programs to be undertaken through these entities
o      The modalities of utilization of funds
o      The monitoring and reporting mechanism.


Yes, companies may collaborate or pool recourses with other companies in carrying on such CSR activities provided the respective companies can report their expenses separately on such projects or programs.


CSR Capacity building is permitted, subject to a max cap of 5% of total CSR Expenditure of the Company in One Financial Year.

What are not considered as CSR Activities:

-          Any activity carried on in the normal course of business.
-          Political Contributions

Major Restriction:

The CSR activities undertaken in India only shall be considered.


How will the above said major restriction be fulfilled by a Foreign Company, as in Sec 135 (5) it is said that “preference shall be given to local areas where it operates” for carrying on the projects or programs.

In this case is it mandatory for them to carry on the activity in India only?

On doing so wouldn’t they be deprived of their right to carry on any activity in their country even when it is so permitted by the act. .
Profits and Expenses of CSR Activities:

Profits arising out of CSR activities:

Cannot be considered to be as business profits of the Company.

CSR Expenditure:

Includes all expenditure contributing to corpus for projects or programs relating to CSR activities approved by the Board on the recommendation of its CSR Committee.


  1. Its so nice how CSR activities has been made mandatory, its a very good step on part of the Government. I was looking for a few articles on CSR activities in India and I came across yours inspiring read.

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