Section 135 of Companies Act, 2013 and The Companies (Corporate Social Responsibility Policy) Rules, 2014)
1. Who is required to form a CSR Committee?
Every company having immediately preceding Financial Year
Net worth - 500cr or more
Turnover - 1000cr or more
Net Profit - 5cr or more
2. What is the composition of the CSR Committee?
CSR Committee constitutes minimum of 3 or more directors, in case where Independent director is present however cases where there is no requirement to appoint Independent Director, minimum number of directors is 2 or more.
3. Is the requirement to constitute CSR Committee is mandatory in every cases?
No, if the amount of CSR Spent is less than 50 lakhs no needs to form a committee, Board of directors itself perform the function.
4. What is the function of CSR Committee?
The CSR Committee shall formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy, which shall include the following, namely:-
(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 utilization of funds and implementation schedules for the projects or programmes;
(d) Monitoring and reporting mechanism for the projects or programmes; and
(e) details of need and impact assessment, if any, for the projects undertaken by the company:
Provided that Board may alter such plan at any time during the financial year, as per the recommendation of its CSR Committee, based on the reasonable justification to that effect.
5. What is the amount of CSR Expenditure?
Company spends in every financial year, at least 2% of the average net profits of the company made during the three immediately preceding financial years.
6. Whether the ‘average net profit’ criteria for section 135(5) are Net profit before tax or Net profit after tax?
Computation of net profit for section 135 is as per section 198 of the Companies Act, 2013 which primarily is NET PROFIT BEFORE TAX.
7. Whether CSR projects or programmes for employee of the Company and their family will form part of CSR activity?
NO, The CSR projects or programs or activities that benefit only the employees of the company and their Families shall not be considered as CSR activities in accordance with section 135 of the Act’.
8. Does the Board report mandatorily mention anything related to CSR?
Board in its report mention the CSR Committee composition and the CSR policy which shall indicates the activities to be undertaken by the company in areas or subject, specified in Schedule VII.
9. What if company fails to spend the CSR amount?
The Board shall, in its report made u/s 134(3)(o) specify the reasons for not spending the amount and if the unspent amount is related to a ongoing project, transfer that unspent amount to an account named “Unspent CSR amount” within a schedule bank within 30 days from the end of FY. From there onwards company have time to utilize that amount within 3 years and at the end of 3 years transfer remaining money to any fund specified in Schedule VII.
If the unspent amount is not related to ongoing project, transfer such amount to the any fund specified in Schedule VII within 6 months of end of the financial year.
10. What if company spends excess of its CSR amount?
Where a company spends an amount in excess of requirement, such excess amount may be set off against the requirement to spend up to immediate succeeding three financial years subject to the conditions that –
(i) the excess amount available for set off shall not include the surplus arising out of the CSR activities, if any.
(ii) the Board of the company shall pass a resolution to that effect.
11. Can the expenditure incurred towards personnel exclusively appointed by the companies for implementing the CSR activities of the company, be included in the expenditure earmarked for CSR activities?
Salary paid by the companies to regular CSR staff as well as employees, who render their services for CSR will be part of Administrative overheads and should not exceed 5% of the total CSR expenditure as per rule 4(6) of CSR Policy, Rules 2014.
12. Whether CSR expenditure of a company can be claimed as business expenditure?
The amount spent by a company towards CSR cannot be claimed as business expenditure. The Finance Act, 2014 provides that any expenditure incurred by an assessee on the activities relating to corporate social responsibility 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.13. Whether contribution in kind is permissible as CSR or not?
Section 135 prescribes “….shall ensure that company spends….”.The company has to spend the amount.
14. List of Activities which don’t come under CSR activities.
(i) activities undertaken in pursuance of normal course of business of the company: Provided that any company engaged in research and development activity of new vaccine, drugs and medical devices in their normal course of business may undertake research and development activity of new vaccine, drugs and medical devices related to COVID-19 for financial years 2020-21, 2021-22, 2022-23 subject to the conditions that-
(a) such research and development activities shall be carried out in collaboration with any of the institutes or organisations mentioned in item (ix) of Schedule VII to the Act;
(b) details of such activity shall be disclosed separately in the Annual report on CSR included in the Board’s Report;
(ii) 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;
(iii) contribution of any amount directly or indirectly to any political party under section 182 of the Act;
(iv) activities benefitting employees of the company as defined in clause (k) of section 2 of the Code on Wages, 2019 (29 of 2019);
(v) activities supported by the companies on sponsorship basis for deriving marketing benefits for its products or services;
(vi) activities carried out for fulfillment of any other statutory obligations under any law in force in India;
15. List of CSR Activities as per Schedule VII.
(i) 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 Central Government for the promotion of 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 including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga.
(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 art and handicrafts;
(vi) Measures for the benefit of armed forces veterans, war widows and their dependents, Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans, and their dependents including widows;
(vii) Training to promote rural sports, nationally recognised sports, Paralympics sports and Olympic sports
(viii) contribution to the prime minister's national relief fund or Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) or any other fund set up by the central govt. for socio economic development and relief and welfare of the schedule caste, tribes, other backward classes, minorities and women;
(ix) (a) 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
(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 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).
(x) rural development projects
(xi) slum area development.
(xii) disaster management, including relief, rehabilitation and reconstruction activities.
16. What are the penalties in case of Non-Compliance of section 135?
The company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or one crore rupees, whichever is less, and every officer of the company who is in default shall be liable to a penalty of one-tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, as the case may be, or two lakh rupees, whichever is less.
CA JUGRAJ SINGH BED
CS RASHMI KUMAR
