CSR in India: A Quick Snapshot

CSR in India: A Quick Snapshot

India became the first country to legislate the need to undertake CSR activities and mandatorily report CSR initiatives under the new Companies Act 2013. 

Concept:

CSR is generally understood as being the way through which a company achieves a balance of economic, environmental, and social imperatives (“Triple-Bottom-Line- Approach”), while at the same time addressing the requirements and expectations of stakeholders.  

It’s a legal responsibility that casts upon a corporate body to address the socio-economic-environmental issues being faced by the nation.

CSR is different from Charity and Philanthropic activities: 

Indian traditions have given a lot of importance to Charitable and Philanthropic activities. Tata and Birla are the two industrial houses who have taken up charity and philanthropic activities decades before the concept of CSR has arrived. However, charity and philanthropy are not CSR, as they may be one-time activities and long-time commitment may or may not be there. CSR is a long time and a structured commitment towards the development of the society and its welfare. 

Transition of CSR

CSR in India has evolved through different phases, like community engagement, socially responsible production and socially responsible employee relations.

The Companies Act, 2013 has introduced the concept of CSR in India to the forefront.

CSR Applicability

Every company having: 

(i) a net worth of Rupees 500 crore or more; or 

(ii) a turnover of Rupees 1000 crore or more; or 

(iii) a net profit of Rupees 5 crore or more, in the immediately preceding financial year is required to comply with the CSR provisions. 

What is CSR Responsibility?

The obligated companies are obligated to spend at least 2% of their average net profit of the immediately preceding three financial years on CSR activities given under Schedule VII of the Companies Act, 2013.

What are the other CSR compliances?

• Constitution of CSR Committee

The obligated companies are required to constitute a CSR Committee. However, where the amount spent by the Company on CSR does not exceed Rs. 50 lakhs, CSR Committee need not be constituted.

• Formulation of CSR Policy

CSR Committee shall formulate and recommend to the Board a CSR policy which shall indicate the activities / projects to be undertaken by the company in the areas or subject, specified in Schedule VII.

• Transfer of unspent amount of CSR to specified funds

In case of any CSR money which was obligated to spend in a financial year could not be spent such funds are to be transferred as provided. For ongoing projects- within 30 days from the FY end, open a special account in any scheduled Bank named as “Unspent CSR account” and transfer such amount.

The Company shall spend such transferred funds within a period of three financial years from the date of such transfer in the Scheduled Bank account.

After three financial years, if anything remains unspent the same need to be transferred to a Fund specified in Schedule VII, within a period of 30 days from the date of completion of the third financial year. 

For activities / programs other than ongoing projects – within 6 months from FY end, Transfer the unspent amount to a fund specified under Schedule VII-Prime Minister’s National Relief Fund, PM CARES Fund, Clean Ganga Fund set up by Central Government for rejuvenation of river Ganga, Swachh Bharat Kosh set up by Central Government for promotion of sanitation are such specified funds.

• Other Compliances

Disclosure in Annual Report

Form CSR-2

CFO certification

Website Disclosure

Impact Assessment, if applicable

What is the Penalty for Non-Compliance of CSR provision?

For non-compliance with the provisions relating to undertaking of CSR expenditure and transfer to Unspent CSR Account/Schedule VII fund (as applicable).

 
A defaulting company is now liable for the lesser of ₹ 1,00,00,000 (Rupees One Crore only) or twice the amountthat should have been transferred to the Unspent CSR Account or the Schedule VII specified fund (as applicable).

Additionally, a defaulting officer is now liable for the lesser of ₹ 2,00,000 (Rupees Two Lakhs only) or one-tenth of the amount that should have been transferred to the Unspent CSR Account or the Schedule VII specified fund (as applicable).

In case of non-compliance with any other provisions of the section or rules, the provisions of section 134(8) or general penalty under section 450 of the Act will be applicable.

Further, in case of non-payment of penalty within the stipulated period, the provisions of section 454(8) would be applicable.