Whatsapp
top of page

Applicability of CSR – The Basics

Updated: Oct 3, 2023



The Companies Act, 2013 requires every eligible company in India to spend 2% of their profits on Corporate Social Responsibility (“CSR”) activities. The company’s Board is entrusted with the responsibility of ensuring proper compliance with the requirement. CSR activities, unlike traditional charity, should be carried out in ‘project mode’ in areas specified in the regulations. The regulations also require preparation of a CSR policy & an annual action plan for undertaking targeted CSR projects during the year.


Although the law is accepted well by the industry at large, the bigger corporates have emerged as early leaders in carrying out CSR activities systematically with the nuts and bolts in place to track and measure the outcome of its programmes. It is still difficult for smaller companies or those that have come under the ambit of the law recently, to understand the intricacies of the law, to ensure compliance and start contributing their share to society at large.


The following article lists down the basics of the CSR law and can be used by companies as a reference point as they begin their CSR journey.


What Is Corporate Social Responsibility (CSR)

As per the Companies Act 2013, “ CSR means activities undertaken by a Company in pursuance of its statutory obligation laid down in section 135 of the Companies Act 2013 in areas listed under schedule VII


CSR Applicability

Every company having a net worth of rupees 500 crores or more, or turnover of rupees 1000 crore or more, or a net profit of rupees 5 crores or more during the immediately preceding financial year.


Areas Permitted Under CSR

Activities that may be included by companies in their Corporate Social Responsibility Policies can relate to the following areas




Implementation Methods

An organization can carry out CSR activities either:


– On its own; or

– By appointing a registered NGO with a track record of at least 3 years of carrying out similar activities in the thematic area selected by the company; or

– Through its corporate foundation; or

– Through an entity established under Act of Parliament or State Legislature; or

– Through a section 8 company/ registered trust/ registered society established by the Central or State Government

Only activities carried out in India are eligible and must not include activities benefiting employees or activities carried out for the fulfilment of any other statutory obligations under any law


Roles and Responsibility of various Stakeholders under the CSR Law

Role of the Board of Directors

– Form a CSR Committee

– Approve the CSR policy and annual action plan

– Ensure execution of CSR activities

– Ensure 2% spend is done on approved projects

– Monitor the implementation of the project with reference to approved timelines and year-wise allocation (in case of ongoing projects)

– Specify the reasons for not spending the amount in the Board’s report, in case of failure to spend

– Transfer the unspent amount, if any, to a separate bank account in case of an ongoing project or to specified funds (in other cases) as mentioned in the regulations within the prescribed time limit

– Disclose the composition of the CSR Committee, CSR policy and approved projects on the Company’s website and in the Board’s report

Role of the CSR Committee

– Formulate and recommend to the Board, CSR policy and annual action plan

– Recommend the amount of expenditure to be incurred on CSR projects/activities

– Monitor the CSR policy and projects of the company from time to time.

Role of the CFO or person responsible for financial management

Certify to the Board that the funds disbursed have been utilised for the purposes and in the manner as approved by the Board


Reporting

– Disclose the annual report on CSR (as per specified format) in the Board’s report

– File form CSR-2 within the prescribed timelines

– Undertake mandatory impact assessment for specified projects


Penal Provision

The following penalty is applicable if an unspent CSR obligation is not transferred to a separate bank account (termed as an “Unspent CSR account”) in case of ongoing projects or to specified funds in other cases within prescribed timelines:

  • Twice the amount required to be transferred by the company or rupees one crore, whichever is less; and

  • One-tenth of the amount required to be transferred by the company, or two lakh rupees, whichever is less, on every officer of the company who is in default

Role of a CSR Consulting Services Firm

A CSR consulting services firm works with an organization to develop and execute a properly defined & structured CSR strategy which not only ensures compliance with the law but also enables the organization to deploy CSR programs successfully and reap benefits from it. CSR advisory services of a CSR consulting firm include:

  • Assistance in the preparation of CSR policies, annual action plan and other supporting documents

  • Quantification of CSR obligation

  • Baseline studies and needs assessment for inclusive CSR programs

  • Identifying implementing agencies based on thematic areas shortlisted by the company

  • Undertaking due diligence/fact-finding reviews of the implementing partners

  • Assistance in monitoring of CSR activities

  • Impact assessment studies for large projects to aid future strategies

  • Advising on tax treatments of CSR spend and suggesting tax-efficient mechanisms

  • Advising on year-end reporting of CSR activities as required by the regulations

  • Identifying appropriate legal structure for setting up a corporate foundation

  • Setting up the corporate foundation along with obtaining the necessary registrations required for operations

  • Setting up Standard Operating Procedures (SOP) for running the foundation such as project selection, finance disbursement, monitoring etc

  • Testing and review of the operating and governance framework

  • Assistance in the preparation and submission of statutory filings for the foundation

  • Accounting & payroll processing for the foundation

Comments


bottom of page