CSR on Dividend Received from Foreign companies

As per explanation to section 135(5) of the Act, “net profit” shall not include such sums as may be prescribed and it shall be calculated in accordance with the provisions of section 198 of the Act. As per rule 2(h) of CSR Rules, “Net profit” means the net profit of a company as per its financial statement prepared in accordance with the applicable provisions of the Act, but shall not include the following: (i) any profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise; and (ii) any dividend received from other companies in India, which are covered under and complying with the provisions of section 135 of the Ac.

Thus if the company receive Dividend from its foreign subsidiary company, Do it needs to pay CSR on such dividend amount?

Hi Neeraj,

Great question on CSR applicability!

Key points from your query:

Section 135(5) & Rule 2(h) of CSR Rules define Net Profit for CSR calculation.
Exclusions from Net Profit include:
- Profits from overseas branches.
- Dividend received from Indian companies covered under Section 135.
Your question: What about dividends received from foreign subsidiaries?

Interpretation & Practice:

Dividend from foreign subsidiaries is not explicitly excluded under CSR rules.
The rules specifically exclude dividend from Indian companies complying with CSR, and profits from overseas branches, but say nothing about dividends from foreign subsidiaries.
Therefore, dividend income from foreign subsidiaries is included in the Net Profit for CSR calculations.
So, yes, the company is required to consider such dividend income when calculating net profit and pay CSR accordingly (if the other CSR applicability thresholds are met).

Supporting points:

Ministry of Corporate Affairs (MCA) FAQs and clarifications generally affirm this interpretation.
The exclusion for overseas branches is about operational profits, but dividends from foreign subsidiaries are treated as income of the company, hence included.
If a company receives dividend from its foreign subsidiary, that dividend forms part of its net profit for CSR.