FAQ on Corporate Social responsibility as per Companies Act, 2013:
1. Whether salaries paid to regular CSR staff and volunteers can be factored into CSR project cost.
Ans: Yes, the above will become a part of CSR expenditure.
2. Under what conditions the expenditure incurred by the foreign holding company for CSR activities in India will qualify as CSR expenditure of the Indian Subsidiary.
Ans: The CSR expenditure should be routed through Indian subsidiary and the Indian subsidiary is covered under CSR provisions of the Act.
3. Name the type of Vocational skills.
Ans: Drivers training, Capacity building for farmers covering best sustainable farm management practises, Training agricultural labour on skill development.
4. Is charity programme same as CSR?
Ans: CSR is traditionally conceived as building upon economic, environmental and social pillars. Philanthropy or corporate giving is almost universally included as an essential part of CSR, but it represents only one aspect of CSR engagement.
5. If a company does help directly or indirectly on a disaster relief, does it qualify as CSR?
Ans:At present, disaster relief is not included in Schedule VII as a CSR Project/Programme and hence it will not qualify. Only contribution through the PM Relief Fund will qualify.
6. In case of using an implementation partner (such as an NGO) for CSR projects - would contribution to the organisation be treated as spending or will the spending be construed only once the organisation has actually spent the relevant amount on implementation of the project?
Ans: Spending shall be construed only when utilisation of allocated funds has occurred. Mere allocation of funds is not spending on CSR.
7. In case of new qualifying companies that have not completed three years - how would the quantification be done as three-year profits would not be available?
Ans: There is no specific guidance to this on the Act and Rule. But as a conservative approach, such new companies that meet any of the three qualification criteria will have their CSR Committee of the Board and the CSR policy is in place.
8. What will be the tax treatment of the CSR spend?
Ans: In the recently proposed Direct Taxes Code (DTC), the finance ministry has observed that allowing deduction for CSR expenditure would imply that the government would be contributing one-third of this expenditure as revenue foregone.
9. Whether CSR is being used as a marketing tactic.
Ans: At times, CSR has been used as a marketing tactic though it bring into the picture the financial guidance which is required to carry out CSR activities. It is basically investing in people.
10. How do we treat CSR spending in the ordinary course of business vs CSR expenses not incurred in the ordinary course. Does it include CSR spending that also includes employees of the Company or their families who are also beneficiaries of such CSR spend?
Ans: CSR activities shall exclude activities undertaken in pursuance of its ‘normal course of business. Programmes or projects or activities that are carried out as a pre-condition for setting up a business or as part of a contractual obligation undertaken by the company or in accordance with any other law, should not be considered as CSR. Such spending on installation of rain water harvesting or a device to prevent pollution which is mandatorily required to be carried out by law shall not qualify as CSR spend. Such requirements under relevant regulations prescribed as a necessary part of running of the business, would be considered to be the activities undertaken in the ‘normal course of business’ of the company and, therefore, would not be considered CSR activities.
CSR projects or programmes or activities that benefit only the employees of the company and their families shall not be considered as CSR. However, programme or activities that are for the benefit of all, but, which also includes some employees or their families will still be considered as CSR as long as such benefits are not exclusively for the benefit of such employees. For example recreational facilities provided for employees and their families in the employee quarters shall not be considered as CSR. However, if the Company maintains say a stadium for promotion of sports in a city used by residents of that place and not exclusively by its employees then such spending shall be still considered as CSR provided that such facilities are not inside the premises of a Company.
11. Treatment of shortage in CSR spend and disclosure and possibility of carry forward of excess spending of CSR. Is there any need for creation of a provision in the event of a shortage in spending?
Ans: Any shortfall in spending in CSR shall be explained in the financial statements and the Board of Directors shall state the amount unspent and reasons for not spending that amount. Any such shortfall is not required to be provided for in the books of accounts. However, if a company has already undertaken certain CSR activity for which a contractual liability has been incurred then, a provision for the requisite amount payable to record that liability needs to be recognized as per the applicable Accounting Standards. Any amount excess spent (i.e., more than 2% as specified in Section 135) cannot be carried forward to the subsequent years. However, the company is entitled to disclose in their Annual Reports of subsequent years any such excess spending of previous years while giving reasons for not spending in those later years.
Will CSR spend be an Appropriation or a charge on P&L. While any CSR spend which is covered above being direct in nature and related to its business processes shall be a charge in the Profit and Loss Account, any expense not covered by above explanations like for example CSR spend in adopting a village for overall development where such village development activity is not related to its business or its earnings or where such spend has no impact on its costs/ operations may be treated as an appropriation out of the profits. However, both the above type of spends shall be aggregated and reported for the purpose of CSR spends reporting required to be made by the company under the Companies Act 2013 and rules thereunder
12. Net Profit calculation methodology- Net Profit as per Section 135 is required to be Calculated as per Section 198 of the Companies Act, 2013. However, Net profits as defined in the Companies (CSR Policy) Rules, 2014 defines Net Profit as Net Profit as per financial statements prepared in accordance with the Act.
Ans: Since the Rules specify that the net profits are as per provisions of the Act and the relevant Section 135 of the Act requires such net profits calculation as per Section 198 of the Companies Act, the net profit shall be calculated u/s 198 of the Companies Act. This is based on a harmonious interpretation of the specific section in the Act and the relevant Rules framed under that Section.
13. Is CSR spending required to be done by the Company directly or such amounts can be contributed to charity/ NGO/ section 25 company. Will such contribution qualify as CSR spend?
Ans: Yes. Contribution by the Company to such trusts, NGOs etc also qualify for CSR spend ifit meets the track record and other criteria as per Rule 4(2) of Companies (CSR Policy)Rules, 2014.
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