Introduction to Corporate Social Responsibility (CSR):
Corporate Social Responsibility (CSR) refers to the responsibility of companies to contribute to social, environmental, and economic development while conducting business. In India, CSR is regulated under Section 135 of the Companies Act, 2013, which makes it mandatory for certain companies to spend a portion of their profits on social welfare activities.
1. Applicability of CSR
CSR provisions apply to companies that meet any one of the following criteria in a financial year:
- Net worth: ₹500 crore or more
- Turnover: ₹1000 crore or more
- Net profit: ₹5 crore or more
Once a company satisfies any of these conditions, it must comply with CSR provisions and constitute a CSR Committee of the Board to plan and monitor CSR activities subject to prescribed exemptions.
2. Amount to be Spent on CSR
Eligible companies must spend at least 2% of their average net profits of the last three immediately preceding financial years on CSR activities.
If a company fails to spend the required CSR amount, it must provide reasons in the Board’s Report and transfer the unspent amount as per the CSR rules.
3. To Whom CSR Funds Can Be Given
CSR funds cannot be given to individuals for personal benefit. They must be spent through eligible implementing agencies such as:
- A registered trust
- A registered society
- A Section 8 company under the Companies Act, 2013
- The Central Government or State Government funds such as relief or development funds
- NGOs registered with the government and having a CSR Registration Number
These organizations must work on activities listed in Schedule VII of the Companies Act, 2013 and must be registered with the Ministry of Corporate Affairs and obtain a CSR Registration Number (Form CSR-1)
4. Period for Which CSR Remains Applicable
Earlier: CSR once applicable remained applicable for 3 financial years.
Earlier, CSR provisions continued to apply for three years once triggered. However, under the amended provisions, applicability is now assessed every year based on the financial criteria of the immediately preceding financial year.
5. Time Limit for Transfer of CSR Amount
If the CSR amount is not spent during the financial year, the company must transfer the unspent amount as follows:
a. If related to an ongoing CSR project:
- Transfer the unspent amount to a special “Unspent CSR Account” within 30 days from the end of the financial year.
- The company must spend this amount within three financial years.
b. If not related to an ongoing project:
- Transfer the unspent amount to a government-specified CSR fund within 6 months from the end of the financial year (i.e., on or before 30th September).
Conclusion
CSR plays a significant role in promoting sustainable development and social welfare. Under the Companies Act, 2013, companies meeting specific financial criteria must allocate 2% of their average profits toward social initiatives. Proper implementation, timely transfer of funds, and working with registered organizations ensure that CSR contributes effectively to the development of society.
Author
Ms. Diksha Gupta
Intern
Pavan Goyal and Associates (Chartered Accountants)
Office No. B212, GO Square, Mankar Chowk, Wakad, Pune 411057
Email – office@goyalca.com
Contact – 9762763351