Sub-section (5) of section 135 of the Companies Act, 2013 states that, "the board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two percent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.
However, proviso (ii) of sub-rule (f) of rule 2 provides that, "net profit in respect of a financial year for which the relevant financial statements were prepared in accordance with the provisions of the Companies Act, 1956, (1 of 1956) shall not be required to be re-calculated in accordance with the provisions of the Act."
Kindly clarify the applicability of proviso (ii) of sub-rule (f) of rule 2 and also clarify, whether for determining the funds to be allocated for CSR for the FY 2014-15, the net profits of the three immediate previous FY's i.e. 2010-11, 2011-12 & 2012-13 have to re-calculated as per section 198 of the Companies Act, 2013 or net profits as already declared in the books of accounts have to be taken into account.
10 October 2014
CSR is applicable from FY 2014-15. For the purpose of First CSR reporting the Net Profit shall mean average of the annual net profit of the preceding three financial years.
Net Profit before tax as per books of FY 2013-14 + Net Profit before tax as per books of FY 2012-13 + Net Profit before tax as per books of FY 2011-12 = Total (A)
Average of annual net profit of the preceding three financial years B =(A/3)
CSR expenditure for the FY 2014-15 (B*2%)
‘Net Profit’ means net profit before tax as per books of accounts, computed as per section 198 of the Companies Act, 2013 and shall not include profits arising from branches outside India
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