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Meaning:

Corporate social responsibility may be referred to as "corporate citizenship" and can involve incurring short-term costs that do not provide an immediate financial benefit to the company, but instead promote positive social and environmental change.CSR IS NOT A CHARITY OR A MERE DONATION.

APPLICABILITY u/s 135(1) :

With effect from April 1, 2014, every company, private limited or public limited, which either has a

1. Net worth of Rs 500 crore or,
2.Turnover of Rs 1,000 crore or,
3. Net profit of Rs 5 crore.

needs to spend at least 2% of its average net profit for the immediately preceding three financial years on corporate social responsibility activities.

The word “companies” here also includes foreign companies having branch or project offices in India.

CSR activities must be with respect to any of the activities mention in schedule VII which are as follows:

a. Eradicating hunger, poverty and malnutrition

b. Promoting preventive healthcare.

c. Promoting education and promoting gender equality, setting up homes for women, orphans and the senior citizens.

d. Contributions or funds provided to technology incubators located within academic institutions approved by the Central Government and rural development projects. 

e. Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare.

f. Contribution to the Prime Ministers' National Relief 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.

NOTE: contribution made to any political party will not be covered under CSR activities.

Computation :

the net worth, turnover and profits are computed under section 198 of companies act 2013 which is given below:

Net profit after tax

Add: profit on sale of immovable property  (original cost – WDV)
Less: premium on sale of forfeited shares, debentures
Profit on sale of immovable property  (sale consideration – original cost )
Surplus in p/l on measurement of Assets   & Liabilities

Less: Expenses Allowed

Usual working charges including

i. Director’s Remuneration
ii. Bonus or commission paid to staff
iii. Tax on abnormal profits
iv. Tax on business profits imposed for special reasons
v. Interest on debentures, loans
vi. Repair expenses other than capital expenditure
vii. Contribution to charitable trusts u/s 181
viii. Depreciation
ix. Prior Period items
x. Legal liability for  compensation
xi. Insurance expenses

Add: Expenses Disallowed

i. Income tax
ii. Compensation made voluntarily
iii. Capital loss on sale of undertaking  (not being losses on sale of assets)

BRIEF ABOUT CSR COMMITTEE:

To fulfill the obligations of CSR , a CSR committee of the board needs to be constituted. As per section 135 of 2013 act CSR committee should comprise of at least 3 Directors which also includes an independent director. However, Private company and unlisted public company and foreign companies need to have a minimum of 2 members.

Reporting FOR CSR:

Rule 8 of the CSR Rules provides that the companies upon which the CSR Rules are applicableshall be required to incorporate in its Board's report an annual report on CSR containing the following particulars:

a. A brief outline of the company's CSR Policy, including overview of projects or programs proposed to be undertaken

b. reference to the web-link to the CSR policy and projects or programs

c. The composition of the CSR Committee

d. Average net profit of the company for last three financial years

e. Prescribed CSR Expenditure (2% of the amount of the net profit for the last 3 financial years)

f. Details of CSR Spent during the financial year

g. In case the company has failed to spend the 2% of the average net profit of the last three financial year, reasons thereof.

WHAT IF A COMPANY CEASES TO BE COVERED UNDER SECTION 135?

According to Rule 3(2) of the Corporate Social Responsibility Rules, 2014, if a company, for 3 consecutive years, ceases to be covered under the ambit of section 135(1), it shall not be required to fulfill the conditions relating to the constitution of CSR Committee and other related provisions.


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Category Corporate Law, Other Articles by - mansi goel 



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