Corporate Social Responsibility
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Applicability, Taxation and, other related terms
Q 1. What is Corporate Social Responsibility?
We live a dynamic life in a world that is growing more complex. Social culture and Economic issues have now become part of our daily life. CSR concept launched by advocated Mahatma Gandhi. Corporate Social Responsibility is an important business strategy to reduce Investment Risk and maximise profits by taking all the key stakeholders into confidence.
Q 2. Is it mandatory to do activities of CSR under the Companies Act?
As per Section 135 of the Companies act, 2013 the CSR provision applies to companies that fulfills any of the following criteria:-
1) Companies having Net worth of Rupees 500 crore or more.
Or
2) Companies having a Turnover of Rupees 1000 crore or more
Or
3) Companies having a net profit of ₹ 5 crores or more.
Q 3. How to Compute Turnover and/or Net Profit?
Net Profit shall be calculated in accordance with section 198 of the companies act, 2013
INDIAN Company:- In order to determine the ‘Net Profit’ Dividend Income received from another Indian company has been excluded. The 2% CSR is computed as 2% of the average net profits made by the company during the preceding three financial years..
FOREIGN Company:- It is not clear as to how the Computation of the Net worth or Turnover would be arrived at in case of branch or project office of a foreign company.
The FORMULA to compute Net Profit= Profit and Loss + Balance sheet – Not Include Dividend Received from other Companies.
Q 4. What is the Time Limit for the formation of CSR Committee ?
Rule 3 of the companies act, specify that every company which ceases to be a company covered under 135 as per the limits specified thereunder for three consecutive financial years shall not be required to constitute a CSR committee and comply with the provision of section 135, till such time that it meets the criteria specified.
Q 5. What must be the composition of the CSR Committee?
CSR Committee to constitute of atleast 3 Directors, Including at least 1 Independent Director. In the case of a Private Company, which has only two directors on the Board, The CSR committee can be constituted with these two Directors. In foreign company comprises two directors out of this one director should be Resident in India.
Q 6. What is the role of the CSR Committee?
- A) To formulate and recommend to the Board
- B) To recommend the amount of the expenditure to be incurred on the activities with the aid of CSR policy.
- C) To institute a transparent monitoring mechanism for implementation of the CSR projects/ Programs
- D) To monitor the CSR policy of the company from time to time.
Q 7. Should CSR Committee held meetings and if yes then how many meetings it should hold?
The meeting shall be held once in a year, But as per the secretarial standard, Committee can hold meeting frequently as per the company’s situation.
Q 8. Are there any disclosures required in Board Meeting about the CSR meetings and CSR Committee?
As per the companies act, it’s mandatory to report on CSR activities in the Board Report such as:-
1) A brief outline of the company’s CSR policy, including an overview of projects or programs
2) The composition of the CSR committee.
3) Average net profit of the company for last 3 Financial years.
4) Prescribed CSR Expenditure.
5) Details of CSR spent during the financial year.
Q 9. Through which category of Companies, Board may decide to undertake CSR Activities?
Section 135 of the act, every company including Section 8 companies undertake CSR activities which fulfills section 135 criteria.
Q 10. Is there any prescribed form/manner in which CSR activities are to be undertaken and if there is any list of expenses that are part of CSR activities?
CSR activities are specified in Schedule VII as the activities which may be included by companies in their Corporate Social Responsibility policies.
The list of CSR activities are as Follows:- Amid lockdown, As per the new rule:-
- A) Covid – 19 related activitiessuch as medicine, Research, and Development, Drugs related covid-19 included in CSR activities.
- B) Acquisition and Creation of a capital assetprovided that is not owned by the company. Example- Public authority.
- C)Promotion of Education
- D) Gender equity and women empowerment
- E) Reducing child mortality and improving maternal Health
- F) Environment and Sustainability
- G) Social Business Projects
- H) Contribution to prime minister’s relief fund and other state and other funds.
Q 11. Is there any list of expenses that are not considered to be CSR activities?
As per clarification issued by MCA on 18th June 2014, the following activities are not part of CSR:-
- A) One-off events such as marathons, Awards, Charitable Contribution, Advertisement and Sponsorships of TV program
- B) Expenses Incurred by companies for the fulfillment of any Act/ Statute of regulations
Q 12. Can a Company deduct CSR expenses in its books of accounts?
CSR cannot be claimed as Business Expenditure, and shall not be deemed to be an expenditure incurred by the assessee for the purpose of the business or profession, Therefore the company cannot deduct CSR expenses in its books of accounts.
Q 13. How much minimum amount is required to be spent on CSR?
There is minimum of 2% of the average net profit of the last three financial years.
Q 14. In case of the Company is unable to spend the minimum CSR amount then what Action Company should take?
If the company unable to spend CSR amount, then the company shall provide the reasons for not spending the amount in its Board Report. If a company has a website, the CSR policy and report containing details to be made available on the company’s website.
Q 15. What is the tax treatment of CSR expenses?
The deduction of CSR amount shall not be treated as a Taxable amount.
Q 16. Which Companies are included in CSR?
As per the companies act 2013, every company including Section 8 company applicable for CSR which fulfills the criteria of section 135.
On the other hand, the following Companies are also included in section 135:-
- A) Holding and Subsidiary Companies
- B) Foreign companies whose branches and project offices in India.
Q 17. Where can be transferred unspent amount of CSR?
Unspent amount of CSR activities shall be transferred to the schedule bank within 30 days from the end of the financial year. The account named ‘Unspent Corporate social Responsibility Account’ to be opened by the company. This amount should be spent within the next three years, and In case if these amount remains unspent then it will transfer to the PM National Relief fund, PM cares Fund, Clean Ganda fund, Disaster management fund within six months from the end of the financial year.