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Regarding CSR

25 January 2021

whether profit before tax of last three FY can be taken to calculate AVG net profit or calculated as per section 198 for private company?

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8 Replies

CA. Sourav Sarkar (Chartered Accountant ) (24578 Points)
Replied 25 January 2021

For calculating csr average net profit of three immediately preceding financial years should be taken @ 2% on such average profit

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Shiva Kumar K (93 Points)
Replied 25 January 2021

Thanks for your response
but my question is calculating AVG net profit of three immediately preceding financial year should be as per section 198 or we can take profit before tax of three immediately preceding financial year for private company?

CA. Sourav Sarkar (Chartered Accountant ) (24578 Points)
Replied 25 January 2021

For private company

Shiva Kumar K (93 Points)
Replied 25 January 2021

Yes sir

CA. Sourav Sarkar (Chartered Accountant ) (24578 Points)
Replied 25 January 2021

Sorry it's not private company it is net profit as per section 198

1 Like

CA Ruchika (AIR 7) (Co-Founder Koncept Education The BEST Online CA Classes! Visit www.konceptca.com) (83 Points)
Replied 04 February 2021

CSR stands for Corporate Social Responsibility. As per section 135 of Companies Act, 2013 mandatorily requires specified percentage of their profits on specified areas of social fulfillment in discharge of their social responsibility.

Which companies are required to constitute CSR Committee?

Every Company having:

Net Profit of rupees 5 crore or more, or
Net worth of rupees 500 crore or more, or
Turnover of rupees 1000 crore or more

During immediately preceding financial year shall constitute a Corporate Social Responsibility committee.

Every company including its holding or subsidiary, and a foreign company having its brach office or project office in India, which fulfils the criteria of Section 135 of the Companies Act, 2013. Provided that Net Profit, Net Worth or Turnover of a foreign company shall be computed in accordance with Balance sheet and profit and loss account of such company prepared in accordance with the prescribed section.

Composition of CSR committee:

CSR committee of the Board shall be consisting of three or more directors, out of which one should be an independent director. Provided further that if a company is not required to appoint independent will form their committee with two or more directors.
A private company having only two directors on its board shall constitute its committee with two such directors.
With respect to foreign company, CSR Committee shall comprise of at least two person of which one should be as per the 380 of the Act and the other person should be nominated by the Foreign Company.

Company have to contribute at least two percent of the average net profits of the company made during the three immediately preceding financial year.

Amount of CSR committee shall not be considered as CSR Activities if contributed towards:

Activities undertaken outside India.
Benefits only to the employees of the company and their families.
Directly or indirectly to a political party.

List of some of the CSR Activities:

Promoting Education, including special education and employment enhancing vocation skills especially among children, women, differently abled and many more.
Promoting Gender equality, women empowerment, setting up hostels and homes for women, old age home for senior citizens.
Contribution towards Prime Minister’s National Relief Fund or PM CARES FUND.
Rural development projects, Slum area development, Disaster management including relief, rehabilitation and reconstruction activities & many more…

If a company fails to contribute towards CSR activities then:

Board has to specify the reasons for not spending yhe amount in the report.
If Board fails to disclose the information it shall be punishable with a fine of not less than 50 thousand which my extend to 25 lakhs and officer in default punishable with a fine of 50 thousand to 5 lakhs or with imprisonment upto 3 years or both.

Aditi Gupta (Management Trainee) (80 Points)
Replied 08 February 2021

Hi,

The profits for last 3 years will be calculated as per Section 198.

Section 198 provides for various adjustments to be made to the profits and here Profit to be taken is Profit before Tax figure appearing in P & L account

Aditi Gupta (Management Trainee) (80 Points)
Replied 08 February 2021

Hi,

The profits for last 3 years will be calculated as per Section 198.

Section 198 provides for various adjustments to be made to the profits and here Profit to be taken is Profit before Tax figure appearing in P & L account