Section
135 of the Companies Act,
2013, Schedule VII of the Act and Com panies CSRPolicy
Rules, 2014
read with General Circular dated 18,06.2014 issued by the Ministry of Corporate Affairs, provide
the broad contour
within
which eligible Companies are required to formulate their CSR policies including activities to be undertaken and implement the same in the
right
earnest. While complying with the Corporate Social Responsibility (CSR)
provisions of the Act, . Board
of the
eligible companies are empowered to appraise and approve
their
CSR policy
including CSRprojects or programmes or activities
to be undertaken. In this connection, Ministry has been receiving
several
queries
and references seeking further clarifications on various
issues relating to CSR provision of the Act.
2. In continuation to
this
Ministry's Gene~al
Circular dated'
18th June, 2014 and 17th September, 2014, a set of FAQs along
with
response
of the Ministry is provided'
for
facilitating
effective implementation of CSR :
FREQUENTLY ASKED QUESTIONS ON CORPORATE SOCIAL
RESPOSIB'TITIES
SI.
No.
FAQs
1. Whether CSRprovisions ofthe Companies Act, 2013 is applicable to all companies?
CSR provisions
of
the
Companies
Act
2013
is applicable to every company
registered under the Companies Act 2013 and any other previous. Companies law
having
\
• net worth of rupees five hundred crore or more, or
f
• turnover of rupees one thousand crore
or more or
• a net profit
of rupees five crore or more
during any financial year -,
2. What is meaning of 'any financial
year' mentioned above?
I( Any Financial year" referred under Sub- Section
(1)
of Section 135 of the Act read with Rule 3(2) of Companies
CSR Rule; 2014 implies
any of the three preceding
financial years (refer
General Circular No. 21/2014, dated:
18.06.2014)
3. Whether CSRexpenditure of a company can be claimed as a business
expenditure?
The amount spent by a company
towards CSR cannot
be claimed as business expenditure. The Finance
Act, 2014 provides
that any expenditure
incurred
by an assessee on the activities relating to Corporate Social Responsibility referred
to in section 13S of the Companies Act, 2013 shall not be deemed to be an expenditure
incurred by the assesseefor the purposes
of the' business or profession.
. .
4. Whether
the 'average
net profit' criteria for section 135(5) is Net profit
before tax or Net profit after
tax?
Computation of net profit for section 135 is as per section
198 of the Companies
Act,
1'013 which is primarily PROFITBEFORETAX (PBT).
S. Can
the CSRexpenditure
be spent
on the activities beyond
Schedule VII?
General Circular
No. 2112014 dated June181 2014 of MeA has clarified
that the statutory provision
and provisions of CS_RRules,
2014, is to ensure that activities undertaken in pursuance of the CSRpolicy must be relatable to-Schedule VII of the Companies Act, 2013. The entries in the
said Schedule
VII must be interpreted
liberally so as to
capture the essence
of the
subjects enumerated in the
said Schedule. The items enlisted in the
Schedule
VII of the Act, are broad-based and are
intended to cover
a wide range of activities. The
General Circular also provides an illustrative list of activities that
can be covered under CSR. In a similar way many more can be covered.
It is for
the
Board
of the company to take a call on this.
6.
What tax benefits can be availed
under
CSR?
No specific tax
exemptions have been extended to CSR expenditure per
se. The 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 Prime Minister's Relief Fund, 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.
"
7. Which activities would not qualify as CSR?
I
L·1
r I
!
• The CSRprojects
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 lV programmes
etc.
•
Expenses incurred by companies
for the
fulfillment of any other
Act! Statute
'.
of regulations (such as Labour
laws,
land Acquisition Act, 2013, Apprentice
Act, 1961 etc.)
•
'Contrlbution of any amount directly or indirectly
to any political
party.
• Activities undertaken by the
company in pursuance of its normal
course of business.
e-
The project or programmes or activities undertaken outside
India.
8. Whether a holding
or subsidiary of a company
which fulfils the criteria under section 135(1) has to comply with
section 135,
even if the
holding
and
subsidiary
itself does not fulfill the criteria.
Holding
or subsidiary of a company does not have to comply
with
section
135(1}
unless
the holding or substdiarv itself fulfills the
criteria.
9. Whether provisions
of CSRare applicable on Section 8 Company,
if it fulfills the
criteria
of section
135(1) of the Act.
Section 135 of the Act reads"
Every company
.......", i.e. no specific exemption
is
given to section 8 companies with regard
to applicability of section 135, hence
section 8 companies are required
to follow CSRprovisions
10.
Can contribution of money to a
trust/Society/Section 8
Companies by a company be treated as CSRexpenditure
of the compa!"lY?
General Circular .No.
21[2014 of MCA dated
June 181 2014 clarifies that Contribution to Corpus of a Trust/ Society/
Section 8 companies
etc. will qualify
as CSRexpenditure as long as :
(a) the Trust/ Society/
Section 8 cornpanvetc, is created exclusively for undertaking.
CSRactivities or' .
(b)
where the
corpus is created
exclusively for a purpose
directly relatable to a subject covered
inSchedule VII of the Act.
11. Whether displ~y of CSR policy of a company
on
website of the company is
. ,
I mandatory or not?
I
!
As per section
135(4) the Board of Directors
of the company shall, after
ta,king
into account the recommendations of CSRCommittee, approve
the CSRPolicy for the company
and disclose contents of such p'olicy in
its report and the same shall be displayed on the company's website, if any ( refer Rule
8 & 9 of CSRPolicy, Rules
2014).
12. Whether reporting
of CSRis mandatory in Board's Report?
The Board's Reportof a company qualifying under section
135(1) pertaining to a
financial year
commencing on or after the pt day of April, 2014 shall include
an annual report on CSRcontaining particulars specified in Annexure. (refer Rule 9
of CSRPolicV, Rules 201~).
13. Whether it is mandatory
for Foreign
Company to give report
on CSRactivity?
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.
14. Whether contribution
towards
disaster relief qualifies as CSRor not?
(May please refer point no. 7 to the annexure
to General Circular dated 18.06.2014
issued by Ministry of Corporate
Affairs).
it
15. Whether contribution 'in kind can be monetized to be shown as CSRexpenditure?
Section 135 prescribes n ••••shall ensure that company spends ....".The company has to spend the amount.
16. If a company
spends in excess
of 2% of its average
net profit of three preceding years on CSRin a
particular year,
can the excess amount spent
be carried forward to' the next year and be offset against
the required 2% CSRexpenditure of the next year?
Any excess amount
spent (i.e., more than 2% as specified
in Section 135) cannot
be carried forward to the subsequent years and adjusted
against that year's CSR
expenditure. .
17. Can the
unspent amount from out
of the minimum required CSRexpenditure be carried forward to the next year?
The Board
is free to decide whether any unspent amount from out of the minirnurn
required CSRexpenditure is to be carried forward to the next year. However,
the
|
J
carried forward amount should be over and above the next year's CSRallocation
equivalent to at least
2% of the average net profit
of the company of the immediately
.1 preceding three years.
18. What is the rote of Government in monitoring implementation of
CSR by companies under the provision of the Companies
Act, 2013?
The main thrust
and spirit of the law is not to monitor but to generate
conducive environment for enabling
the
corporates
to' conduct themselves in a socially responsible manner, while contributing towards human development
goals of the
country.
The existing
legal provisions like mandatory disclosures, accountability of the CSR Committee and the Board,
provisions for audit of the accounts
of the company etc., provide
sufficient
safeguards in this
regard. Government has no role to play
in monitoring implementation of CSRby companies
19. Whether government is proposing to establish any mechanism for third
parties to monitor the quality and efficacy of CSRexpenditure as well as to have an impact
assessment of CSRby Companies?
Government has no role to play in engaging external
experts for monitoring
the
quality and efficacy
of CSR.expenditure of companies.
Boards / CSRCommittees are
|
, I
|
I'
:
fully competent to engage third parties_to have an impact assessment of its CSR
program me to validate compliance of the CSRprovisions of the law.
|
|
; .
. !
20.
Can
CSRfunds be utilized to fund Government Scheme?
The objective of this provision
is indeed to involve the corporates
in discharging their social responsibility with their innovative ideas and management skills
and with greater efficiency and better outcomes.
Therefore, CSRshould not be interpreted as a source of financing the resource gaps in Government Scheme. Use of corporate innovations and management skills
in the delivery of 'public
goods' is at the core of
CSRimplementation by the companies. In-principle, CSRfund of companies should not be used as a
source of funding Government Schemes. CSRprojects should have
a larger multiplier effect than that under the Government schemes.
However, under CSRprovision of the Act and rules made thereunder, the Board of
the eligible company is competent to
take decision on supplementing any Government Scheme provided the scheme permits corporates participation and all provisions of Section 135 of the Act and rules thereunder are compiled by the
company.
21. Who is the appropriate authority for approving
and implementation of the
CSR
programmes /projects
of a Company?
What is Government's
role in this regard?
Government has no role to play in this regard. Section 135 of the Act, Schedule
VII and Companies
CSR Policy Rules,
2014 read with
General Circular dated
18.06.2014 issued by the Ministry
of Corporate
Affairs, provide the broad contour within which eligible companies are required
to
formulate their
CSR policies
including activities to be undertaken and implement the same in the right earnest.
Therefore, all CSRprogrammes I projects should be approved
by the Boards on the
recommendations of their CSRCommittees. Changes, if
any, in the programme I
project should also be undertaken only with the approval of the Committee
I Board.
22. How
can companies with small CSR funds
take up CSR activities
in a project
I
programme mode?
A well designed
CSRproject or programme can be managed with even small fund. Further, th~re is a provision in the CSRPolicy Rules, 2014, that such companies can combine their CSRprograms
with other
similar companies by way of pooling their CSRresources. ( refer rule 4
in Companies (CSRPolicy) Rules, 2014). •
r:
23. Whether involvement of employees of the
company in CSR project'
programmes
of
a company can
be monetized
and
accounted for
under
the
head
of 'CSR
expenditure'?
Contribution and
involvemen-t of employees in CSRactivities of the com pany will
no
doubt generate interest / pride
in CSR work and promote transformation from Corporate Social
Responsibility (CSR)
as an obligation. to
Socially Responsible Corporate (SRC) in all aspects of their functioning. Companies therefore, should be encouraged to involve their employees in CSR activities. However
monetization of
pro bono services
of employees
would
not be counted towards CSR expenditure.
3. This issues
with the approval of Competent Authority.
Company Secretary GAURAV SHARMA+919990694230 Connect on Watts App with Gaurav Email us [email protected] Official Blog Fema India Experts Connect with our Facebook Page:- Click and Like our Page Subscribe our Email updates like other 15,000 Members, Free/Easy/Comfortableway
