CSR Non applicability.
This query is : Resolved
27 February 2024
One of My Clients had crossed the threshold limit of profits mentioned for the applicability of CSR as mentioned in sec 135 CSR, in the FY 2019-20
Hence CSR was applicable to my client for the
FY 20-21
FY 21-22
FY 22-23
And accordingly 2% of avg past 3 years profit was incurred for CSR Expenditure from FY 20-21 to FY 22-23.
Now the Client has not crossed any threshold limits as mentioned in section 135 of Companies Act 2013, from FY 20-21 , will the CSR provisions still apply to the client for the FY 23-24? Please response as per latest Law , Rules and Regulation.
Hence CSR was applicable to my client for the
FY 20-21
FY 21-22
FY 22-23
And accordingly 2% of avg past 3 years profit was incurred for CSR Expenditure from FY 20-21 to FY 22-23.
Now the Client has not crossed any threshold limits as mentioned in section 135 of Companies Act 2013, from FY 20-21 , will the CSR provisions still apply to the client for the FY 23-24? Please response as per latest Law , Rules and Regulation.
06 July 2024
As per the Companies Act, 2013 and the latest rules and regulations concerning Corporate Social Responsibility (CSR), here's how the applicability would be determined for your client:
1. **Applicability Criteria for CSR:**
- CSR provisions apply to a company if it meets any of the following criteria based on its average net profit over the last three financial years:
- The company's net profit in the last three financial years averages at least Rs. 5 crore.
- The company has a net profit of at least Rs. 5 crore in any one of the last three financial years.
2. **Assessment Period:**
- For FY 20-21, FY 21-22, and FY 22-23, your client had crossed the threshold limit for applicability based on the profits earned in FY 19-20. Hence, CSR expenditure was required and duly incurred for these years.
3. **Current Situation (FY 23-24):**
- According to the latest rules, the applicability of CSR for FY 23-24 will be based on the average net profit of the preceding three financial years, i.e., FY 21-22, FY 22-23, and FY 23-24.
- Since your client did not cross the threshold limits in FY 21-22 and FY 22-23 (as per your statement), the average net profit for these years will determine the applicability for FY 23-24.
- If the average net profit over FY 21-22, FY 22-23, and FY 23-24 meets or exceeds Rs. 5 crore, CSR provisions will apply for FY 23-24.
4. **Conclusion:**
- Your client's CSR applicability for FY 23-24 will depend on whether the average net profit over FY 21-22, FY 22-23, and FY 23-24 meets or exceeds Rs. 5 crore.
- If the average net profit criteria are met, your client will need to allocate 2% of the average net profits of these three years towards CSR activities as per the provisions of the Companies Act, 2013.
It's essential to review the financial statements for FY 21-22 and FY 22-23 to calculate the average net profit accurately and determine the CSR obligations for FY 23-24 accordingly.
1. **Applicability Criteria for CSR:**
- CSR provisions apply to a company if it meets any of the following criteria based on its average net profit over the last three financial years:
- The company's net profit in the last three financial years averages at least Rs. 5 crore.
- The company has a net profit of at least Rs. 5 crore in any one of the last three financial years.
2. **Assessment Period:**
- For FY 20-21, FY 21-22, and FY 22-23, your client had crossed the threshold limit for applicability based on the profits earned in FY 19-20. Hence, CSR expenditure was required and duly incurred for these years.
3. **Current Situation (FY 23-24):**
- According to the latest rules, the applicability of CSR for FY 23-24 will be based on the average net profit of the preceding three financial years, i.e., FY 21-22, FY 22-23, and FY 23-24.
- Since your client did not cross the threshold limits in FY 21-22 and FY 22-23 (as per your statement), the average net profit for these years will determine the applicability for FY 23-24.
- If the average net profit over FY 21-22, FY 22-23, and FY 23-24 meets or exceeds Rs. 5 crore, CSR provisions will apply for FY 23-24.
4. **Conclusion:**
- Your client's CSR applicability for FY 23-24 will depend on whether the average net profit over FY 21-22, FY 22-23, and FY 23-24 meets or exceeds Rs. 5 crore.
- If the average net profit criteria are met, your client will need to allocate 2% of the average net profits of these three years towards CSR activities as per the provisions of the Companies Act, 2013.
It's essential to review the financial statements for FY 21-22 and FY 22-23 to calculate the average net profit accurately and determine the CSR obligations for FY 23-24 accordingly.
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