Corporate Social Responsibility: Companies Act Guidelines

Introduction

Corporate Social Responsibility (CSR) is a form of self-regulation that reflects a company’s accountability and commitment to contributing to the well-being of communities and society through environmental and social initiatives.

The Companies Act, 2013 introduced Section 135, which mandates certain companies to spend a prescribed percentage of their profits on CSR activities. In this blog, we discuss CSR provisions under the Companies Act, 2013, the CSR Amendment Rules 2022, and the Companies CSR Policy Rules 2014.

Overview of CSR (Corporate Social Responsibility)

Corporate Social Responsibility (CSR) is a type of business self-regulation with the aim of social accountability and making a positive impact on society. CSR practices are a way to demonstrate a business’s position on the matter and contribute to the greater good and not only greater profit. Some ways that a company can embrace CSR include being environmentally friendly and eco-conscious, promoting equality, diversity, and inclusion in the workplace, and supporting social causes.

CSR Provisions under Companies Act 2013

The CSR provisions under the Companies Act, 2013, require companies to:

• Spend at least 2% of their average net profits of the preceding three financial years on CSR activities.
• Set up a CSR committee consisting of at least three directors, including an independent director.
• Develop a CSR policy that outlines the company’s CSR registration objectives and activities.
• Disclose the CSR activities in the annual report of the company.

CSR (Corporate Social Responsibility) Applicability in India   

• The provisions under CSR applies to every company, its holding company, subsidiary company, and foreign company meeting certain financial criteria.

• The financial criteria include net worth greater than INR 100 crore, turnover exceeding INR 500 crore, or net profit surpassing INR 3 crore in the preceding financial year.

CSR (Corporate Social Responsibility) Applicability in India

• The provisions under CSR applies to every company, its holding company, subsidiary company, and foreign company meeting certain financial criteria.
• The financial criteria include net worth greater than INR 500 crore, turnover exceeding INR 1000 crore, or net profit surpassing INR 5 crore in the preceding financial year.

What is the Role of Board of Directors in CSR?

• The Board of Directors are responsible for approving the CSR policy after considering the recommendations of the CSR Committee.
• The Board ensures that only activities mentioned in the policy are undertaken.
• The company must spend a minimum of 2% of the average net profits made during the three immediately preceding financial years, as per the CSR policy.
• If a company has not completed three financial years since its incorporation, the average net profits shall be calculated accordingly.
• The Board’s report discloses the composition of the CSR Committee, the contents of the CSR Policy, and reasons for any unspent amount.

Companies CSR Policy Rules 2014

The Companies CSR Policy Rules 2014 provide guidelines for companies to develop their CSR policy. The CSR policy should include the following:

• The company’s CSR objectives and activities.
• The manner in which the CSR activities will be undertaken.
• The modalities of execution of the CSR activities.
• The monitoring and reporting mechanism for the CSR activities.

CSR (Corporate Social Responsibility) Amendment Rules 2022

The Ministry of Corporate Affairs (MCA) has recently amended the CSR rules to provide more flexibility to companies in their CSR spending. The CSR Amendment Rules 2022 allow companies to carry forward unspent CSR funds for up to three financial years, instead of the earlier limit of two years. The amendment also allows companies to set off excess CSR spending in a financial year against the required CSR spending in the subsequent financial years.

Conclusion

In conclusion, the Companies Act, 2013, introduced Section 135, which mandates companies to spend a certain percentage of their profits on CSR activities. The CSR provisions under the Companies Act, 2013, require companies to spend at least 2% of their average net profits of the preceding three financial years on CSR activities, set up a CSR committee, develop a CSR policy, and disclose the CSR activities in the annual report of the company. The last amendment to the CSR rules provides more flexibility to companies in their CSR spending. By following the guidelines outlined in this blog, companies can ensure that they are in compliance with all the CSR laws and regulations.

Frequently Asked Questions on Corporate Social Responsibility (CSR)