This article has been written by Ms. Saina Parveen, a CS Executive level Student from the Institute of Company Secretary of India (ICSI)

INTRODUCTION

As per Section 135 of the Companies Act,2013 “Corporate Social Responsibilities” means the activities undertaken by the companies in pursuance of the provisions contained in Section 135 of the Act.

The activities are lists out in Schedule VII of the Act but do not include the following namely:

1. The activities are undertaken in the ordinary course of business of the company. Provided that any company engaged in research and development activities such as new vaccines, drugs, and medical devices are related to COVID-19 for the financial years 2020-2021 to 2022-2023, with some conditions that- the activities must be done with collaboration with any of the institutions or organizations and details of such activities also disclosed in Annual Report on CSR and laid down in the Board’s Report;
2. The activity is undertaken outside India by the company. Indian sports training representing any State or Union territory at the national level or international level is excluded.
3. Contribution as per Section 182 to any political party any amount directly or indirectly.
4. The activities mentioned in Code on Wages, 2019 for the benefit of employees.
5. Such other activities to fulfillment of any other statutory obligations.

Applicability of the CSR on Companies only if they touch the following limits: 

1. Net worth of Rs. 500 crores or more or;
2. Turnover of Rs. 1000 or more or;
3. Net Profits of Rs. 5 crores or more.

The immediately preceding 3 financial years shall constitute a CSR committee.

The above-mentioned limits will be attracted if the company has a holding, subsidiary, and a foreign company having its branch office or project office in India.

Further, if the company fails to satisfy the criteria for 3 financial years, then it’s not required to comply with the CSR obligations.

An amount to be spend to CSR as per Section 135 as follows:  

1. The Board of every company shall ensure that the company spends at least 2% of the average net profits in every financial year made during the immediately preceding three financial years. If the company’s duration from incorporation is less than three years and it meets the specified criteria, in that case, the financial years will be less than three years.
2. While spending the amount the company shall give preference to its local area first.
3. If the company fails to spend the amount of CSR, the Board shall require to reduce the reason for not spending the amount and if there are any ongoing projects, then details of the projects also be disclosed, and spend the unspent amount to be transferred to a Fund as per Schedule VII within six months of the expiry of the financial year.
4. If the amount remaining in the unspent Fund of the ongoing projects, then such amount to be transferred to a special account named “Unspent Corporate Social Responsibilities Account”, within 30 days from the end of the financial year as per the obligation of the Corporate Social Responsibilities Policy.  
5. As per Section 135(9), where the amount spent by the company does not exceed Rs. 50 lakhs, then the requirement of the constitution of the CSR Committee shall not be applied. All functions of CSR will be discharged by the Board of Directors of such company.
6. The board shall ensure that the administrative overheads shall not exceed 5% of the total CSR expenditure of the company for the financial year.

Composition of the Committee:

1. It shall consist of 3 or more Directors of which one should be an Independent Director. The Companies which are not to required to appoint an independent director shall have only 2 or more directors on the committee.
2. Private limited companies which have a minimum of 2 directors on their board shall constitute only 2 directors on the committee.
3. The Foreign Company has at least 2 directors one of whom must be a resident in India and can be nominated by the foreign company.

Some of the benefits of the CSR are:

1. Enhancing the corporate image and reputation;
2. Increasing the ability to attract and help the economy to increase the GDP;
3. Strengthening the brand position of the Company;
4. Contribution to the surrounding society;
5. Enhancing the sales and market shares of the Company.

The list of activities of CSR as per Schedule VII are as follows:

1. Eradicating hunger, poverty, and malnutrition, promoting health care including preventive health care and sanitation including the Swach Bharat Kosh set up by the Central Government for the promotion of sanitation and making available safe drinking water.
2. Promoting education including special education and employment including among children, women, the elderly, and the differently abled and livelihood enhancement projects.
3. Promoting gender equality, empowering women, setting up homes and hostels for women and orphans, setting up old age homes, etc.
4. Ensuring environmental sustainability, and ecological balance including contribution to the Clean Ganga Fund set up by the Central Government for the rejuvenation of river Ganga.
5. Protection of national heritage, art, and culture including restoration of buildings and works of arts, setting up public libraries, promotion and development of traditional arts and handicrafts. 
6. Measures for the benefits of armed forces veterans, war widows, and their dependents included the measures for the benefit of Central Armed Police (CAPF), etc.
7. Training to promote rural sports, nationally recognized sports, para-Olympic sports, and Olympic sports.
8. Contribution to the Prime Minister’s National Relief Fund or Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) and welfare of the Scheduled Castes, the Scheduled Tribes other backward classes, minorities, and women;
9. Rural development projects;
10. Slum area development where ‘slum area’ shall mean any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force.
11. 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.

The average net profits calculations:

The average net profits of any financial year shall be calculated as per Section 198 of the Companies Act, 2013

CSR Reporting 

• If any company covers under the CSR policy, then, it shall in its Board Report also include an Annual Report on CSR containing particulars.
• Foreign Company’s balance sheet also disclosed the particulars of CSR.
• The impact assessment reports shall be placed before the Board and shall be annexed to the annual report on CSR.

CSR Implementation:

1. The board shall ensure that the CSR activities are undertaken by the company itself or through-

1. A company established under Section 8 of the Companies Act,2013 or a registered public trust or a registered society, registered under Section 12A and 80 G of the Income Tax Act, 1961
2. Any entity established under an Act of Parliament or a State legislature; etc.

1. Entity that is covered under the Act shall be registered with the Central Government by filling the Form CSR-1 electronically.
2. The Form should be signed and verified digitally by a CA or a CS in practice or a Cost Accountant in practice.
3. On the submission of Form CSR-1 on the portal, a unique CSR Registration Number shall be generated by the system automatically.
4. It is the duty of the CSR committee to recommend to the Board the activities and the policies of the CSR.