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OVERVIEW OF CSR EXPENDITURE
* Rushali Agarwal
* | Company Law - Articles
|
* Download PDF
* 08 Apr 2023
* 714 Views
* 0 comment
BACKGROUND ON CSR
This article envisages a brief understanding of CSR provisions and how to the
spending of CSR is undertaken.
As per Companies Act, 2013, a Company covered under Section 135(1) of the
Companies Act, 2013 is required to spend 2% of Average net profits of the
company made during the three immediately preceding financial years towards
Corporate Social Responsibility (CSR).
Rule 2(d) of the Companies (CSR) Rules, 2014 defines the term CSR as follows –
“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: Provided that any company engaged in research and development activity
of new vaccine, drugs and medical devices in their normal course of business may
undertake research and development activity of new vaccine, drugs and medical
devices related to COVID-19 for financial years 2020-21, 2021-22, 2022-23
subject to the conditions that-
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(a) such research and development activities shall be carried out in
collaboration with any of the institutes or organisations mentioned in item (ix)
of Schedule VII to the Act;
(b) details of such activity shall be disclosed separately in the Annual report
on CSR included in the Board’s Report;
(ii) any activity undertaken by the company outside India except for training of
Indian sports personnel representing any State or Union territory at national
level or India at international level;
(iii) contribution of any amount directly or indirectly to any political party
under section 182 of the Act;
(iv) activities benefitting employees of the company as defined in clause (k) of
section 2 of the Code on Wages, 2019 (29 of 2019);
(v) activities supported by the companies on sponsorship basis for deriving
marketing benefits for its products or services;
(vi) activities carried out for fulfilment of any other statutory obligations
under any law in force in India;
MODES OF SPENDING CSR AMOUNT –
As per Rule 4 of the Companies (CSR) Rules, 2014 , A Company can undertake CSR
activities either by itself or through any implementing agencies. However, such
implementing agencies shall fall under the following categories in order to be
eligible to receive CSR funds –
1. A company established under section 8 of Companies Act, or a registered
public trust or a registered society, registered under section 12A and 80 G of
the Income Tax Act, 1961, that is established by the company. Or
2. 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
3. Any entity established under an Act of Parliament or a State legislature. Or
4. 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.
Further, it is to be noted that in every implementing agency shall register
itself with the Central Government by filing the form CSR-1 electronically with
the Registrar, i.e., every implementing agency shall have a CSR-1 registration
in order to be eligible to receive CSR Funds.
TIME LIMIT FOR CSR SPENDING –
A Company shall spend the CSR amount for the financial year by the end of next
financial year. For example for FY 21-22 the Company hits the CSR applicability,
then the CSR amount shall be spent in the FY 22-23.
In case there is any unspent CSR amount i.e., the Company has not completely
spent the required CSR amount within the FY 22-23, then the said amount shall be
transferred to any funds specified in Schedule VII of the Companies Act, 2013
within six months from the end of the Financial year.
PENAL PROVISIONS FOR CSR
If the Company fails to spend the CSR amount within the financial year or fails
to transfer the unspent CSR amount to any fund in schedule VII within the
specified time period, the 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.
PERMITTED CSR ACTIVITIES AS PER COMPANIES ACT, 2013
A Company shall spend its CSR expenditure only on the activities specified in
Schedule VII of the Companies Act, 2013. Schedule VII specifies the areas or
subjects to be undertaken by the Company for CSR activities
The Act does not recognise any expenditure on areas/ activities outside the
Schedule VII as CSR expenditure.,
CONCLUSION:
CSR spending has now become a mandatory compliance for companies falling under
Section 135 of the Act. The CSR provisions can be summarised as below –
1. Amount to be spent – 2% of average net profits of the last three immediately
preceding financial years
2. A company shall spend CSR amount either by itself or through an implementing
agency.
3. Implementing agency generally are – Section 8 Companies (NGOs), public trusts
and Registered societies.
4. Implementing agencies shall mandatorily fall under the following criteria –
* * Registered under section 12A and approved under 80 G of the Income Tax Act,
1961
* Shall have an established track record of 3 years in undertaking CSR
activities
* Shall have CSR-1 registration.
5. The Company shall ensure that the CSR amount for the applicable financial
year by the end of next financial year.
6. In case there is any unspent CSR amount, the same shall be transferred to any
fund specified in Schedule VII.
7. CSR spending shall be done only on activities specified in Schedule VII.
8. Companied Act, 2013 now mentions levying of penalty in case of
non-compliance.
Tags: Companies Act, Companies Act 2013, corporate social responsibility, CSR
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AUTHOR BIO
Name: Rushali Agarwal
Qualification: CS
Company: N/A
Location: Hyderabad, Telangana, India
Member Since: 04 Apr 2023 | Total Posts: 1
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