Corporate Social Responsibility - Current Scenario and Reforms
Corporate Social Responsibility (CSR) is well accepted among shareholders as well as with various other stakeholders of society in India. The term CSR is new normal for Indian organisations. CSR tends to focus on what is done with profits after they are made. Larger corporations understand that CSR is an integral part of business framework for sustainable development. Companies also consider that CSR is an approach towards sustainable development and focus on the triple bottom line of Economic, Environmental and Social performance. CSR Shall be Considered as a Responsibility of Corporate towards Society and shall not be taken as Charity.
In India, the term Corporate Social Responsibility (CSR) is widely being used even though related concepts and terms, such as business responsibility, sustainable development, philanthropy, sustainability, corporate citizenship, responsible business, triple bottom line, shared value, value creation, business ethics, socio-economic responsibility, bottom of pyramid, stakeholder management, corporate responsibility, and corporate social performance.
The CSR activities of Indian companies are in line with the provisions of Section 135 with Schedule VII to the Companies Act, 2013. The CSR initiatives of companies thrust on creating value in the lives of the communities around its areas of business and manufacturing operations.Most of the businesses consider community as one of its apex stakeholders and believes in inclusive growth. This year most of the organisations continued its CSR initiatives in the realm of Education, Health, Livelihood, Rural Development and Social Entrepreneurship.
Section
135 of Companies Act 2013
Every
company having
Net
worth of rupees five hundred crore or more,
Or
Turnover
of rupees one thousand crore or more
Or
Net
profit of rupees five crore or more
during 3 [Immediate Preceding Financial Year] shall constitute a Corporate Social Responsibility
Committee of the Board consisting of three or more directors, out of
which at least one director shall be an independent director. Where there is no requirement of appointment of Independent Director, It shall have 2 or more directors in its CSR Committee.
2) The Board's report under sub-section (3) of Section 134 shall
disclose the composition of the Corporate Social Responsibility Committee.
(3) The Corporate Social Responsibility Committee shall,—
(a) formulate and recommend to the Board, a Corporate Social Responsibility
Policy which shall indicate the activities to be undertaken by the
company
Schedule
VII
Activities
which may be included by companies in their Corporate Social Responsibility
Policies Activities relating to:—
(i)
Eradicating hunger, poverty and malnutrition, [‘‘promoting health care
including preventinve health care’’] and sanitation [including
contribution to the Swach Bharat Kosh set-up by the Central Government for the
promotion of sanitation] and making available safe drinking water.
(ii) Promoting
education, including special education and employment enhancing vocation skills
especially among children, women, elderly and the differently abled and
livelihood enhancement projects.
(iii) 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.
(iv) 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].
(v) 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;
(vi) Measures
for the benefit of armed forces veterans, war widows and their dependents;
(vii) Training
to promote rural sports, nationally recognised sports, paralympic sports and
olympic sports
(viii)
Contribution to the prime minister's national relief fund 8[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;
(ix) Contribution to incubators funded by Central Government or State Government or any agency or Public Sector Undertaking of Central Government or State Government, and contributions to public funded Universities, Indian Institute of Technology (IITs), National Laboratories and Autonomous Bodies (established under the auspices of Indian Council of Agricultural Research (ICAR), Indian Council of Medical Research (ICMR), Council of Scientific and Industrial Research (CSIR), Department of Atomic Energy (DAE), Defence Research and Development Organisation (DRDO), [Department of Biotechnology (DBT)], Department of Science and Technology (DST), Ministry of Electronics and Information Technology) engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs).]
(x) rural development projects
(b) recommend the amount of expenditure to be incurred on the activities and
(c) monitor the Corporate Social Responsibility Policy of the company from time
to time.
(4) The
Board of every company referred to in sub-section (1) shall-
(a) after taking into account the recommendations made by the Corporate Social
Responsibility Committee, approve the Corporate Social Responsibility Policy
for the company and disclose contents of such Policy in its report and also
place it on the company's website, if any, in such manner as may be prescribed;
And
(b) ensure that the activities as are included in Corporate Social
Responsibility Policy of the company are undertaken by the company.
(5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years [or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years], in pursuance of its Corporate Social Responsibility Policy.
Provided that the company shall give
preference to the local area and areas around it where it operates, for
spending the amount earmarked for Corporate Social Responsibility activities:
Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount [and, unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year].
Table to Calculate the Net Profit for CSR
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Particulars |
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Net profit after
tax |
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Add: |
Allowed
Credits |
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1. |
Profit
on sale of Immovable Property (Original
Cost-WDV) |
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Less: |
Credit
Disallowed |
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1 |
Premium on shares
or debentures
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2 |
Profit on sale of
forfeited shares
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3 |
Profit on sale of
immovable property (Sale Value of
Immovable Property – Original Cost) |
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4 |
Surplus in P&L
on measurement of asset or liability at fair value |
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Less: |
Expenses
Allowed |
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1 |
All the usual
Working Charges
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2 |
Director’s
Remuneration
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3 |
Bonus or
Commission paid to Staff
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4 |
Tax on escess or
abnormal profit
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5 |
Tax on business
profits imposed for special reasons |
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6 |
Interest on
Debentures
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7 |
Interest on Loans |
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8 |
Expenses on
repairs (other than Capital Expenditure) |
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9 |
Contributions made
under section 181 (Bonafide Charitable Trusts) |
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10 |
Depreciation |
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11 |
Prior period items
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12 |
Legal liability
for compensation or damages |
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13 |
Insurance Expenses
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Add: |
Expenses
Disallowed |
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1 |
Income Tax |
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2 |
Compensations,
damages or payments made voluntarily |
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3 |
Capital Loss on
sale of undertaking or part thereof (Not include losses on sale of asset) |
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4 |
Expenditure in
P&L on measurement of asset or liability at fair value |
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Comparison Chart between Newly Formed CSR Rules 2020 and Existing Rules 2014
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S.No. |
Existing Rules AS Per Companies (CSR Policy) Rules
2014 |
Proposed Rules As Per Companies (CSR Policy) Rules
2020 |
|
Rule 2 |
“Corporate Social Responsibility
(CSR)” means and includes but is not limited to: - (i)Projects or programs relating to
activities [areas or subjects] specified in Schedule VII to
the Act; or (ii) Projects or programs relating
to activities undertaken by the board of directors of
a company (Board) in pursuance of recommendations of the CSR Committee of the
Board as per declared CSR Policy of the
company subject to the condition that such policy will (Include activities,
Areas and Subjects) specified in Schedule VII of the Act.
|
Corporate
Social Responsibility (CSR)" means the activities undertaken by a
Company in pursuance of its statutory obligation laid down in section 135 of the Act in accordance with the provisions
contained in these Rules, but shall not include the following, namely- i)
Activities undertaken in pursuance of normal course of business of the
company. ii)
Any activity undertaken by the company outside India. iii)
Contribution of any amount directly or indirectly to any political party
under section 182 of the Act. iv)
activities that significantly benefit the employees of the company and their
families. Provided that in
case of any activity having less than twenty five percent employees as its
beneficiary, then such activity shall be deemed to be CSR activity under
these rules. |
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“CSR Policy” relates to the activities to be undertaken
by the (Company in areas and Subject) expenditure thereon, excluding activities
undertaken Specified in Schedule VII to the Act and in pursuance of normal course of business of a company; |
"CSR Policy" means a statement containing the
approach and direction given by the board of a company, as per
recommendations of its CSR Committee, for selection, implementation and
monitoring of activities to be undertaken in areas or subjects specified in
Schedule VII of the Act |
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Rule 4 |
The Board of a company may decide to
undertake its CSR activities approved by the CSR Committee, through (a) a company established under section 8 of the
Act or a registered trust or a registered society, established by the
company, either singly or alongwith any other company, or (b) 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
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The Board shall ensure that the CSR activities are undertaken by the company itself or through: (a) a company established under section 8 of the Act, or (b) any entity established under an Act of Parliament or a State
legislature. Provided that such company/entity, covered under clause (a) or (b), shall register itself with the central government for undertaking any CSR activity by filing the e-form CSR-1 with the Registrar along with prescribed fee. Provided further that the provisions of this sub-rule shall not affect the CSR projects or programmes that were approved prior to the commencement of the Companies (CSR Policy) Amendment Rules, 2020. |
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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 able to report separately on such projects or programs in accordance with these rules. |
No Change
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A company may
engage international organizations for designing, monitoring and evaluation
of the CSR projects or programmes as per its CSR policy as well as for
capacity building of their own personnel for CSR. Provided that a company may also engage
an international organization for implementation of a CSR project subject to
prior approval of the central government. |
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Board of a company shall satisfy itself
that the funds so disbursed have been utilized for the purpose and in the
manner as approved by it and Chief financial Officer or the person
responsible for financial management shall certify to the effect. |
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In case of ongoing projects, 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. |
|
Rule 5 |
The CSR Committee shall institute a
transparent monitoring mechanism for implementation of the CSR projects or programs,
or activities undertaken by the company. |
The CSR Committee shall formulate and recommend to the
Board, an annual action plan in pursuance of its CSR policy, which shall
include the following: (a) the list of CSR projects or programmes that are
approved to be undertaken in areas or subjects specified in Schedule VII of
the Act; (b) the manner of execution of such projects or programmes
as specified in sub-rule (1) of Rule 4; (c) the modalities of utilization of funds and
implementation schedules for the projects or programmes; and (d) monitoring and reporting mechanism for the projects or
programmes. (e) Details of need and impact
assessment, if any, undertaken by the company.” |
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Rule
6
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The CSR Policy of
the company shall, inter-alia, include the following namely:- (a) a list of CSR
projects or programs which a company plans to undertake 1[areas or subjects specified in] of the Schedule VII of the Act, specifying modalities of
execution of such project or programs and implementation schedules for the
same; and (b) monitoring
process of such projects or programs: Provided that the
CSR activities does not include the activities undertaken in pursuance of
normal course of business of a company. Provided further
that the Board of Directors shall ensure that activities included by a
company in its Corporate Social Responsibility Policy are related to
the 2[areas or subjects specified in Schedule VII] of the
Act. (2) The CSR Policy
of the company shall specify that the surplus arising out of the CSR projects
or programs or activities shall not form part of the business profit of a
company. |
Omitted |
|
Rule
7 |
CSR expenditure shall include all expenditure including contribution to corpus, or on projects or programs relating to CSR activities approved by the Board on the recommendation of its CSR Committee, but does not include any expenditure on an item not in conformity or not in line with activities which fall within the areas, Subjects and activities as specified under Schedule VII. |
(1) The board
shall ensure that the administrative overheads incurred in pursuance of
sub-section (4) (b) of section 135 of the Act shall not exceed five percent
of total CSR expenditure of the company for the financial year. Provided that a
company undertaking impact assessment, in pursuance of sub-rule (3) of Rule
8, may incur administrative overheads not exceeding ten percent of total CSR
expenditure for that financial year. (2) Any surplus
arising out of the CSR projects or programmes or activities shall not form
part of the business profit of a company and shall be ploughed back into the
same project or shall be transferred to the Unspent CSR Account and spent in
pursuance of CSR policy and action plan of the company. 3) The CSR amount
may be spent by a company for creation or acquisition of assets which shall
only be held by a company established under section 8 of the Act having
charitable objects or a public authority. Provided that any asset created by a company prior to the commencement of Companies (CSR Policy) Amendment Rules, 2020, shall within a period of One hundred and eighty days from such commencement comply with the requirement of this rule, which may be extended by a further period of not more than ninety days with the approval of the board based on reasonable justification. (4)Unspent
balance, if any, towards fulfilment of CSR obligation at the time of
commencement of these Rules shall be transferred within a period of thirty
days from the end of Financial Year 2020-21 to special account viz., ‘Unspent
Corporate Social Responsibility Account’ opened by the company and such
amount shall be spent by the company in pursuance of its obligation towards
the Corporate Social Responsibility Policy within a period of three 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
thirty days from the date of completion of the third financial year.” |
|
Rule
8 |
1) The Board’s
Report of a company covered under these rules pertaining to a financial year
commencing on or after the 1st day of April, 2014 shall include an annual
report on CSR containing particulars specified in Annexure. (2) In case of a
foreign company, the balance sheet filed under sub-clause (b) of
sub-section (1) of section 381 shall contain an Annexure regarding report
on CSR. |
A New Sub Section
3 shall be added (3) A company
having the obligation of spending average CSR amount of Rs 5 Crore or more in
the three immediately preceding financial years in pursuance of sub section 5
of Section 135 of the Act, shall undertake impact assessment for their CSR
projects or programmes, and shall disclose details of the same in its Annual
Report on CSR.” |
|
Rule
9 |
The Board of
Directors of the company shall, after taking into account the recommendations
of CSR Committee, approve the CSR Policy for the company and disclose
contents of such policy in its report and the same shall be displayed on the
company’s website, if any, as per the particulars specified in the Annexure. |
The Board of
Directors of the company shall mandatorily disclose the composition of the
CSR Committee, and CSR Policy and Projects approved by the Board on their
website for public viewing, as per the particulars specified in the
Annexure.” |
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Rule
10 |
|
National Unspent
Corporate Social Responsibility Fund: (1) The Central Government shall establish a fund called
the “National Unspent Corporate Social Responsibility Fund” (herein after
referred as “the Fund”) for the purposes of sub-section (5) and (6) of
section 135 of the Act. The Fund shall be utilized for the purposes of
undertaking CSR projects in the in areas or subjects specified in schedule
VII of the Act. Provided that
until such fund is created the unspent CSR amount in terms of provisions of
sub-section (5) and (6) of section 135 of the Act shall be transferred by the
company to any fund as specified in schedule VII of the Act. (2) The manner of
administration, authority for administration of the Fund shall be in
accordance with such guidelines as may be prescribed by the Central
Government from time to time.” |
Conclusion
“Business needs to go beyond the Interest of their Companies to the Communities they Serve”
Ratan Tata, Former Chairman, Tata Group
Regards
CS Shubham Kapoor
Ph- 9711244345, 7017667034
Email- kapoor.shubhamm@gmail.com
Great work and worth reading 👌
ReplyDeleteExpressively impressive.
ReplyDeleteAwesome... Such a crisp and to the point article.
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