Corporate Social Responsibility Legislation in India - Overview
The Corporate Social Responsibility (CSR) legislation in India mandates companies, including CPSEs, to allocate a portion of their profits towards CSR activities. This legislation came into force in 2014, requiring eligible companies to spend at least 2% of their average net profits from the past three years on specified CSR initiatives. The responsibilities of the CSR committee and the company's board in formulating, recommending, and implementing CSR policies are outlined, along with the activities covered under Schedule VII of the Act.
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Corporate Social Responsibility Department of Public Enterprises BRICS FORUM Chennai 18-19thNovember, 2016 1
Corporate Social Responsibility (CSR) Legislation For the first time, anywhere in the world, CSR for companies, including CPSEs has been mandated through legislation in India Section 135 of the Companies Act, 2013 contains CSR provisions Schedule VII of the Act enumerates activities that can be undertaken by CPSEs as CSR Section 135, amended Schedule VII of the Act, and the Companies (Corporate Social Responsibility Policy) Rules, 2014 were notified by M/o Ministry of Corporate Affairs on 27th Feb 2014 All came into force from 01.04.2014. This is the first year of implementation of CSR by CPSEs under the Act 2014-15 was the first year of implementation of CSR by Companies under the Act 2
Highlights of Statutory Provisions Under Section 135 of the Act, companies, including CPSEs crossing thresholds, i.e., Net Worth of INR 500 crore or more; OR Turnover of INR 1000 crore or more; OR Net Profit of INR 5 crore or more, are required to discharge the obligations of CSR. At least 2% of the average net profits of the company made during 3 immediately preceding financial years are to be spent on CSR activities every year. Net profit for computation of CSR spends is to be computed as per Section 198 of the Act and is Profit Before Tax (PBT). Such companies have to constitute a CSR committee of the Board, comprising of three Directors or more with at least one Independent Director. The CSR projects or programs or activities undertaken in India only shall amount to CSR Expenditure, though companies shall give preference to the local area and areas around its operations. 3
Responsibilities of the CSR Committee & Company s Board Responsibilities of the CSR Committee : To formulate and recommend a CSR policy which shall indicate activities as specified in Schedule VII of the Act. To recommend amount of expenditure to be incurred on CSR activities To monitor the CSR policy of the company from time to time. Responsibilities of the Company s Board : Approve and disclose CSR Policy in the Annual Report and on the company website Ensure implementation of CSR activities as per the Policy Directors Report to specify reasons in case the specified amount is not spent 4
Activities covered in Schedule VII of the Act Eradicating hunger, poverty, malnutrition, promoting healthcare including contributions to Swach Bharat Kosh Promoting education and employment enhancing vocational skills; Promoting gender equality, empowering women; Ensuring environmental sustainability including contribution to Clean Ganga Fund ; Protection of national heritage, art and culture; Measures for the benefit of armed forces, war widows and their dependents; Promotion of sports; Contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government; Contribution to technology incubators; Rural development projects; Slum-area development; 5
Activities outside the Purview of CSR The CSR projects or programs or activities that benefit only the employees of the company and their families One-off events such as marathons/ awards/ charitable contribution/ advertisement/sponsorships of TV programmes etc. Expenses incurred by companies for the fulfillment of any Act/ Statute of regulations (such as Labour Laws, Land Acquisition Act etc.) Contribution of any amount directly or indirectly to any political party Activities undertaken by the company in pursuance of its normal course of business. Contributions flowing out of budgetary resources, profits or from the balance sheets of CPSEs to PMNRF. 6
Method of Implementation of CSR CPSEs can undertake implementation of CSR projects directly by themselves. through a registered trust or a registered society or a company established by the company or its holding or subsidiary or associate company under section 8 of the Act. through such trust, society or Section 8 company not established by the company. In this case the entity has to have three years track record and the modalities of utilization of funds and monitoring and reporting mechanism on such projects and programs, specified. Progress of implementation of CSR in CPSEs is monitored by the administrative Ministries/ Departments concerned. Under MoU System, CSR is included as a non-financial parameter with weightage upto 3 marks. Non-compliance of CSR provisions of the Act will be penalized upto 1 mark at the time of MoU Evaluation. 7
Tax Concessions No specific tax exemption have been extended to CSR expenditure per se. Finance Act, 2014 also clarifies that expenditure on CSR does not form part of business expenditure. While no specific tax exemption has been extended to expenditure incurred on CSR, spending on several activities like contributions to scientific research, rural development projects, skill development projects, agricultural extension projects, etc., which find place in Schedule VII, already enjoy exemptions under different sections of the Income Tax Act, 1961. 8
Timeline for Statutory Disclosure on CSR This is the 2nd year of implementation of CSR by companies, including CPSEs under the Act Under Section 134 (3)(o) of the Act, CPSEs are obliged to include Annual Return on CSR in their Board s Report as per the prescribed format These returns for the year will be filed electronically with the Ministry of Corporate Affairs only after September, 2015 Details about the expenditure incurred by the companies, including CPSEs under CSR is available to Ministry of Corporate Affairs from MCA-21 system only towards the end of December 9
