Corporate Social Responsibility (CSR) new hot topic introduced by Companies Act, 2013.Many times we have heard about CSR but what exactly it is let us now understand.
What is CSR ?
As a layman if we explain it than CSR is “The corporate belief that a company needs to be responsible for its actions – socially, ethically, and environmentally”.
Companies have a lot of power in the community and in the national economy. They control a lot of assets, and may have billions in cash at their disposal for socially conscious investments and programs. Some companies may engage in "greenwashing", or feigning interest in corporate responsibility, but many large corporations are devoting real time and money to environmental sustainability programs, alternative energy/cleantech, and various social welfare initiatives to benefit employees, customers, and the community at large. This is CSR.
In other words,
Corporate social responsibility may also be referred to as "corporate citizenship" and can involve incurring short-term costs that do not provide an immediate financial benefit to the company, but instead promote positive social and environmental change.
KEY HIGHLIGHTS ON CSR BY COMPANIES ACT 2013
With a view to have greater responsibility towards society by the corporates, 2013 Act, provides for CSR:
Provisions applicable to every company having:
– Net worth of Rs. 5 billion or more; or
– Turnover of Rs.10 billion or more; or
– Net profit of Rs. 50 million or more during any Financial Year.
a. BOD of such companies is mandated to spend, in every FY, minimum 2% of the average net profits of the company made during the 3 immediately preceding FYs, in pursuance of its the CSR Policy.
b. Such companies are required to constitute CSR committee of its BOD which is responsible for formulating and recommending to the BOD the CSR Policy of the company.
c. BOD is required to approve the CSR policy and disclose its content in the Director’s Report and also place the same on the company’s website.
d. The company is required to give preference to local area and areas where it operates for spending the amount earmarked for CSR.
e. If the company fails to spend such amount, BOD is required to specify the reasons for not spending the amount in the Director’s report.
WHAT CONSTITUTE ELIGIBLE CSR SPEND
Activities which may be considered as eligible CSR spend are provided in Schedule VII of the Act. The specified activities are as under:
– Environment sustainability
– Empowering women and promoting gender equality
– Education
– Poverty reduction and eradicating hunger
– Social business projects
– Reducing child mortality & improving maternal health
– Improvement of health
– Imparting of vocational skills
– Contribution towards Central & State Government funds for socio-economic development and relief
– Such other matters as may be prescribed.
The draft CSR rules further provide following guidelines / manner in which the company can undertake CSR activities and incur CSR spend:
–The company can set-up a not-for-profit organisation in the form of trust, society or non-profit company to facilitate implementation of its CSR activities. However, the contributing company shall specify projects / programs to be undertaken by such an organisation and the company shall establish a monitoring mechanism to ensure that the allocation to such organisation is spent for intended purpose only.
– A company may also implement its CSR programs through not-for-profit organisations that are not set up by the company itself.
– Such spends may be included as part of company’s prescribed CSR spend only if such organisations have an established track record of at least 3 years in carrying on activities in related areas.
– Companies may also collaborate or pool resources with other companies to undertake CSR activities.
– Only CSR activities undertaken in India would be considered as eligible CSR activities.
– CSR activities may generally be conducted as projects or programmes (either new or ongoing), however, excluding activities undertaken in pursuance of the normal course of business of a company.
– CSR projects / programs may also focus on integrating business models with social and environmental priorities and processes in order to create shared value.
– CSR activities shall not include activities exclusively for the benefit of employees and their family members.
CSR-UNDER INCOME TAX ACT, 1961
Expenditure on CSR may be allowed as deduction under the I.T Act depending on the facts. While the draft CSR rules suggest that tax treatment of CSR spend will be in accordance with the Income-tax Act, 1961 as may be notified by Central Board of Direct Taxes (CBDT), one will have to wait and watch for notification from CBDT and whether the same provides adequate certainty on tax treatment of CSR spend.
For any query contact at: cchachra@gmail.com
CAclubindia
