Understanding CSR(Corporate Social Responsibility) Returns
Corporate Social Responsibilityis one of the most vital elements of today’s business practices, which talk about a commitment by organizations to give back to society and contribute towards its welfare and the environment. This guide will help you understand CSR under Section 135 of the Companies Act, 2013, its applicability, the importance of CSR, and the process for filing CSR returns.
Corporate Social Responsibility Under Section 135 of the Companies Act 2013
CSR stands for the voluntary contributions of companies toward a better society and a better environment. It implies the integration of social and environmental concerns into business operations. However, Section 135 of the Companies Act, 2013, has made it mandatory for some companies to contribute a certain amount toward CSR activities.
Applicability of Provisions Relating to CSR in India
Provisions of CSR shall apply to every company including its holding or subsidiary companies that fulfills any of the following criteria in any of the preceding financial years:
Net worth equal to or more than rupees five hundred crores.
- i) Turnover of more than Rs. 1000 crore
- ii) Net profit more than Rs. 5 crore
Such companies shall mandatorily spend at least 2% of their average net profits made during the last three financial years on CSR activities.
Why is Corporate Social Responsibility Important?
The CSR is important for the following reasons:
● Improves Public Image
This enunciates that the company is working towards the betterment of society and hence this leads to improved public image.
● Brand Value:
It leads to building a strong brand that is socially responsible.
● Competitive Advantage:
It gives a competitive advantage to the competitors by giving them a lead by indulging in community services.
Role of the Board of Directors
The Board of Directors has a major responsibility in terms of CSR implementation:
- CSR Policy Approval
- Ensuring Compliance: The activities undertaken must be in compliance with the CSR policy.
- Monitoring of Spending: Ensuring a minimum of 2% of the average net profits are spent on CSR.
- Reporting: Disclosure of CSR activities, policy and spending in the Board’s Report.
Net Profit for CSR Applicability
The net profit computation for CSR is carried out under Section 198 of the Companies Act, 2013. Some profits, like premium on shares, and sale of forfeited shares are excluded and some deductions, like directors’ remuneration and usual working charges, are included.
Transfer and Use of Unspent Amount
The unspent CSR funds have to be transferred to specified funds like the Prime Minister’s National Relief Fund or other similar funds, within six months of the financial year-end. In the case of an ongoing project, the unspent amount is transferred to an ‘Unspent Corporate Social Responsibility Account’ and spent within three years. In case the funds are not spent in the aforesaid period, they shall be transferred to the specified fund within thirty days from the date of completion of the third financial year.
Applicability of CSR Committee
The companies satisfying the CSR criteria shall constitute a Committee known as a CSR Committee consisting of at least three or more boards of directors with an independent director. It would be responsible to formulate and recommend the CSR policy, expenditure, and monitoring the implementation of CSR activities.
Duties of the CSR Committee
Formulation of CSR Policy: Recommend activities as per Schedule VII of the Act.
Recommendation of Expenditure: Recommend the quantum to be spent on CSR activities.
CSR Policy Monitoring: Proper Implementation of the projects concerning CSR.
Control Mechanism: The procedures for CSR activities will be transparent.
CSR Reporting
The Board’s Report for any financial year commencing on or after April 1, 2014, shall include an annual report on CSR. In the case of foreign companies, the balance sheet filed with the registrar should have an annexure of the CSR report.
CSR Policy
CSR policy outlines activities that a company will undertake, ensuring that they certainly accord with Schedule VII of the Act. A policy has to be displayed on the website of the company, and also shall not be in the normal course of business of the company.
CSR Activities Permitted Under Schedule VII of the Companies Act, 2013
Some of the activities permitted under Schedule VII of the Companies Act, 2013 are: –
- Eradication of poverty and hunger
- Promotion of education and health
- Gender equality and women empowerment
- Environmental Sustainability
- National heritage and art protection
- Welfare of veterans of the armed forces and their families
- Rural development and slum area development
- Disaster management
Penalties and Fines in Case of Non-compliance
Non-compliance regarding CSR provisions is a punishable offence with penalties on the company and its officers. The company will have to pay a fine of up to Rs. 1 crore or twice the amount of unspent, whichever is bigger. The officers have to pay a fine of up to Rs. 2 lakh or one-tenth of the unspent amount, whichever is bigger.
Reason for Introduction of CSR for Companies
In today’s complex world, companies are expected to behave like responsible corporate citizens. Companies Act, 2013 has been instrumental in implementing CSR to make businesses come forward for social and environmental upliftment by asserting that profit-making alone is not the ultimate goal of business.
Conclusion
CSR is not only a statutory requirement under the Companies Act, 2013, but it is part of the corporate ethos. Therefore, understanding CSR provisions and their effective implementation is very necessary for every company to make valuable contributions towards society and add significant value to the company itself.
Frequently Asked Questions on CSR Returns from Vedkee Associates
- What is Corporate Social Responsibility (CSR) under the Companies Act, of 2013?
Corporate Social Responsibility is the voluntary contribution made by companies to make society better and the environment clean. Section 135 of the Companies Act, 2013, lays down that every company which falls within the ambit of the stipulations contained therein shall be required to spend at least 2% of its average net profits for the last three financial years on CSR. These activities are specified under Schedule VII of the Act and relate to education, healthcare, environmental sustainability, and others.
- Which companies are required to comply with the provisions relating to CSR?
The provisions of CSR shall apply to every company, including its Holding/Subsidiary Companies, having any of the following criteria in the preceding financial year:
Net worth > INR 500 crores
Turnover > INR 1000 crores
Net profit > INR 5 crores.
Such companies shall ensure they spend at least 2% of their average net profits of the three preceding financial years on CSR activities.
- What role does the Board of Directors have in the implementation of CSR?
The Board of Directors shall:
- Approve the CSR policy, after considering the recommendations of the CSR Committee.
- Ensure that CSR activities are undertaken in only those areas or sectors specified in the CSR policy.
- Ensuring that the company shall spend at least 2% of its average net profits on CSR activities.
- The Board’s Report shall disclose the CSR activities, policy, and spending, giving reasons for any unspent amounts and details of their transfer to specified funds.
- What happens to unspent CSR funds?
Unspent CSR funds are to be transferred to specified funds (e.g., the Prime Minister’s National Relief Fund) within six months from the end of the financial year. In the case of ongoing projects, the unspent amount is to be transferred to a separate ‘Unspent Corporate Social Responsibility Account’ and to be spent within three financial years. In case the funds are not spent in the aforesaid period, they shall be transferred to the specified fund within thirty days from the date of completion of the third financial year.
- What happens in case of non-compliance of provisions related to CSR?
Non-compliance regarding CSR provisions is a punishable offence with penalties on the company and its officers. The company will have to pay a fine of up to Rs. 1 crore or twice the amount of unspent, whichever is bigger. The officers have to pay a fine of up to Rs. 2 lakh or one-tenth of the unspent amount, whichever is bigger.
Also read: GeM Portal Registration, Pvt Ltd Company Registration