Everything You Should Know About – CSR

What Is Corporate Social Responsibility (CSR)?

Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially accountable—to itself, its stakeholders, and the public. CSR is a gesture of showing the company’s concern & commitment towards society’s sustainability & development. CSR is the ethical behavior of a company towards society.

Many companies view CSR as an integral part of their Brand Image, believing that customers will be more likely to do business with brands that they perceive to be more ethical.

To Whom CSR is applicable?

Every company having

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

during the immediately preceding financial year shall constitute a CSR Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director (if company is not required to appoint an independent director under section 149(4), it shall have in its CSR Committee two or more directors).

Ceasing Effect of CSR

The CSR Rules specify that a company which does not satisfy the specified criteria for a consecutive period of three financial years is not required to comply with the CSR obligations, implying that a company not satisfying any of the specified criteria in a subsequent financial year would still need to undertake CSR activities unless it ceases to satisfy the specified criteria for a continuous period of three years.

How much amount need to spend under CSR and what to do with unspent amount?

The Board of every company shall ensure that the company spends, in every financial year, at least 2% of the average net profits of the company made during the three immediately preceding financial years (where company has not completed three financial years since its incorporation).

• If company fails to spend such amount, the Board shall specify the reasons for not spending the amount in its Board Report and transfer the unspent amount to a Fund specified in Schedule VII, within a period of 6 months of the expiry of the financial year.

• If any amount remaining unspent pursuant to any ongoing project, shall be transferred by the company within a period of 30 days from the end of the financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account, and such amount shall be spent by the company in pursuance of its obligation towards the CSR Policy within a period of 3 financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII, within a period of 30 days from the date of completion of the third financial year.

• If the entity spend more than the prescribed amount, such excess amount can be set off against the requirement to spend up to immediate succeeding three financial years subject to condition that excess amount is not arising from CSR activities and resolution has been passed to this effect by Board.

• Expenditure incurred by foreign holding company for CSR activities in India will qualify as CSR spend of the Indian subsidiary if, the CSR expenditures are routed through Indian subsidiaries and if the Indian subsidiary is required to do so as per section 135 of the Act.

Expenditure under CSR

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

• a company established under section 8 of the Act, or a registered public trust or a registered society, registered under section 12A and 80 G of the Income Tax Act, 1961, established by the company, either singly or along with any other company, or
• a company established under section 8 of the Act or a registered trust or a registered society, established by the Central Government or State Government; or
• any entity established under an Act of Parliament or a State legislature; or
• a company established under section 8 of the Act, or a registered public trust or a registered  society, registered under section 12A and 80G of the Income Tax Act, 1961, and having an established track record of at least three years in undertaking similar activities.

• Every entity who intends to undertake any CSR activity, shall register itself with the Central Government by filing the Form CSR-1 electronically with the Registrar w.e.f.  01.04.2021 to be certified by CA/CS/CMA in practice. On submission, a unique CSR number will be generated.

• A company may engage international organizations for designing, monitoring and evaluation of the CSR projects or programs as per its CSR policy as well as for capacity building of their own personnel for CSR.

• A company may also collaborate with other companies for undertaking projects or programs or CSR activities in such a manner that the CSR committees of respective companies are in a position to report separately on such projects or programs in accordance with these rules.

• The Board of a company shall satisfy itself that the funds so disbursed have been utilized for the purposes and in the manner as approved by it and the Chief Financial Officer or the person responsible for financial management shall certify to the effect.

 In case of ongoing project, the Board of a Company shall monitor the implementation of the project with reference to the approved timelines and year-wise allocation and shall be competent to make modifications, if any, for smooth implementation of the project within the overall permissible time period.

Activities specified in Schedule VII

Activities which may be included by companies in their Corporate Social Responsibility Policies Activities relating to:—

• Circular No. 05/2021 dated 22nd April, 2021 it was clarified that spending CSR funds for COVID-19 is an eligible CSR activity. Also, spending of CSR funds for setting up makeshift hospitals and temporary COVID Care facilities is an eligible CSR activity under item nos. (i) and (xii) of Schedule VII of the Companies Act, 2013 relating to promotion of health care, including preventive health care and disaster management respectively.
• Circular No. 09/2021 dated 5th May, 2021, it is clarified that spending of CSR funds for ‘creating health infrastructure for COVID care’, ‘ establishment of medical oxygen generation and storage plants’, manufacturing and supply of Oxygen concentrators, ventilators, cylinders and medical equipment for countering COVID-19’ or similar such activities are eligible CSR activity under item nos. (i) and (xii) of Schedule VII of the Companies Act, 2013 relating to promotion of health care, including preventive health care and disaster management respectively.
• Eradicating hunger, poverty and malnutrition, promoting health care including preventive health care and sanitation [including contribution to the Swatch Bharat Kosh set-up by the Central Government for the promotion of sanitation] and making available safe drinking water. 
• promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects.
• promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups.
• ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water [including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga].
• protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional art and handicrafts; 
• measures for the benefit of armed forces veterans, war widows and their dependents,  Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans, and their dependents including widows;
• training to promote rural sports, nationally recognised sports, paralympic sports and olympic sports
• contribution to the prime minister’s national relief fund [or Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund)] or any other fund set up by the central govt. for socio economic development and relief and welfare of the schedule caste, tribes, other backward classes, minorities and women;
• (a) 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 or Public Sector Undertaking or any agency of the Central Government or State Government; and
• (b) Contributions to public funded Universities; Indian Institute of Technology (IITs); National Laboratories and autonomous bodies established under Department of Atomic Energy (DAE); Department of Biotechnology (DBT); Department of Science and Technology (DST); Department of Pharmaceuticals; Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH); Ministry of Electronics and Information Technology and other bodies, namely Defense Research and Development Organization (DRDO); Indian Council of Agricultural Research (ICAR); Indian Council of Medical Research (ICMR) and Council of Scientific and Industrial Research (CSIR), engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs).]

• rural development projects]
• slum area development.
• disaster management, including relief, rehabilitation and reconstruction activities.

Preference to be given to the local area and areas around the company operates for CSR spending.

Penalty for Non-Compliance/Default

• Company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or one crore rupees, whichever is less, and

• Every officer of the company who is in default shall be liable to a penalty of one-tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, as the case may be, or two lakh rupees, whichever is less.

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TEAM SIGMA LEGAL