CORPORATE SOCIAL RESPONSIBILITY

Corporate Social Responsibility (CSR) refers to the concept that businesses have a responsibility to consider the social and environmental impacts of their operations and take actions to address them. This means that companies should not only focus on maximizing profits for shareholders but also take into account their impact on the communities they operate in, the environment, and their stakeholders such as customers, employees, suppliers, and investors.

CSR can take many forms, including charitable donations, environmental sustainability efforts, ethical labor practices, and community engagement programs. The idea is that companies should act as responsible members of society and contribute to the well-being of their communities and the environment, rather than solely focusing on their own interests.

The concept of CSR has gained prominence in recent years as consumers and stakeholders increasingly expect companies to be socially and environmentally responsible. Many companies now include CSR as a core part of their business strategy, recognizing that it can benefit both their bottom line and society as a whole.

APPLICABILITY OF CSR?

In many countries, there are laws and regulations that require companies to engage in Corporate Social Responsibility (CSR) activities or disclose their CSR efforts. The Company’s Act is a piece of legislation that sets out the legal framework for companies in many countries, including India, the UK, and Singapore.

The Companies Act in these countries includes provisions that require companies to report on their social and environmental impact, as well as to disclose information about their CSR policies and initiatives. In India, for example, the Companies Act 2013 mandates that companies meeting certain thresholds must spend a certain percentage of their profits on CSR activities and report on their activities and expenditures.

WHO IS LIABLE TO COMPLY WITH CSR?

Section 135 of the Companies Act 2013 is a provision that requires certain companies in India to spend a certain percentage of their profits on Corporate Social Responsibility (CSR) activities. The provision applies to companies meeting any of the following criteria:

Companies with a net worth of Rs. 500 crore or more

Companies with a turnover of Rs. 1,000 crore or more

Companies with a net profit of Rs. 5 crore or more

Such companies are required to spend at least 2% of their average net profits of the preceding three financial years on CSR activities. The Act provides a list of activities that qualify as CSR activities, including promoting education, gender equality, environmental sustainability, and healthcare, among others.

In addition to the spending requirement, companies covered by Section 135 must also constitute a CSR committee, consisting of at least three directors, one of whom must be an independent director. The committee is responsible for formulating and recommending the CSR policy, monitoring its implementation, and reporting on the same.

Non-compliance with Section 135 can result in penalties and fines for the company and its officers, and can also damage the company’s reputation. Therefore, it is essential for companies meeting the criteria to comply with the CSR spending and reporting requirements set out in the Act.

WHAT ARE THE ACTIVITIES QUALIFY AS CSR?

The Companies Act 2013 in India has a list of activities that qualify as Corporate Social Responsibility (CSR) activities for companies that meet certain thresholds. The Act requires companies meeting these thresholds to spend a certain percentage of their profits on CSR activities. Here are some of the activities that qualify under the Companies Act 2013:

Eradicating hunger, poverty, and malnutrition
Promoting education, including vocational education and special education
Promoting gender equality and empowering women
Ensuring environmental sustainability, including conservation of natural resources and ecological balance
Protecting national heritage, art, and culture
Supporting the development of sports, including rural sports, nationally recognized sports, and Paralympic sports
Supporting the development of technology incubators and research and development of new products
Promoting rural development, including rural infrastructure and livelihoods
Promoting healthcare, including preventive healthcare and sanitation etc.

These are just some of the activities that qualify as CSR under the Companies Act 2013. Companies have some flexibility in choosing the specific CSR activities they want to undertake, as long as they fall within the broad categories set out in the Act. However, companies are required to disclose their CSR policy and activities in their annual reports, ensuring transparency and accountability.

RECENT AMENDMENTS IN CSR

If a company is having any amount Unspent in their Corporate Social Responsibility (CSR) Account as per sub-section (6) of section 135 of the Companies Act, 2013 then they shall form the CSR Committee and has to comply with the provisions specified in the act.

In case Section 135 (1) of the Companies Act, 2013 is once applicable on the company, it shall comply with the CSR provisions until and unless it ceases to meet the criteria during the next 3 years has now been omitted.

Board shall ensure that the CSR activities shall undertake by the company on its own or through implementing agency, that is a new class of implementing agencies came into picture by inserting non for profit company, or a registered public trust or registered society which is exempted under of Income Tax Act, 1961, which is having an established track record of at least three years in undertaking similar kind of activities.

Those IAs need not require to take registration under sections 12A and 80G of the Income Tax, 1961.

Form CSR-1 has also been changed for adding an option for registration of newly added clause of IAs.

A company that is taking impact assessment may book the expenditure for CSR in that F Y. The expenditure shall not exceed 2% of total CSR expenditure or Rs. 50 lakhs, whichever is higher. Before, it was 5% of total CSR expenditure or Rs. 50 lakhs, whichever is less.

A New format of CSR reporting has been introduced.