Corporate Social Responsibility(CSR)

INTRODUCTION (CSR)

INTRODUCTION (CSR)

TRANSITION TO THE ACTRepeal of the Companies Act, 1956 (“Old Law”) and transition to the Act

CLAUSE 135 REQUIREMENTS

KEY HIGHLIGHTS

For whom (CSR)

Create Board Committee • CSR Committee of the Board

3 or more Directors, at least one Independent Director

Spend & Reporting • Beginning FY2014-15 • Spend at least 2% of average net profits (before taxes) in

last 3 years • Format specified in draft rules • Specify “reason” if spend is less than 2%

CLAUSE 135 REQUIREMENTS – KEY HIGHLIGHTS

DRAFT RULES – CSR COMMITTEE & BOARD

DRAFT RULES – CSR COMMITTEE & BOARD

Corpus of CSR

Average net profits + Any income arising there from + Surplus arising out of CSR activities

DRAFT RULES – CSR COMMITTEE & BOARD

WHAT COUNTS IN 2%

WHAT COUNTS IN 2%

WHAT COUNTS IN 2%

WHAT DOESN’T COUNTS IN 2%

CSR Policy, including web link if available

CSR Committee

Average Net Profit for last 3 financial years

Threshold Limit = 2% of above

Explanation if spend is less than 2%

Responsibility Statement of CSR Committee

REPORTING FRAMEWORK

REPORTING FRAMEWORK

CSR Committee & Policy Broaden to encompass area of CSR work

- Specific projects/programs defined by CSR Team

- Promote other aspects of shared value such as

environmental activities which go beyond the law

Internal Include all “Full-Time Equivalents” (FTE) across CSR Team, volunteerism, and social business integration

External Include Social Businesses that are not NGOs Implementation

- Phased: FY2014-15 only reporting, no 2% mandate

- Net Profits: Only profits made in India

- Accounting: Below the line as an appropriation

RECOMMENDATIONS

FAQs

1) Whether is applicable to Private limited and closely

held public limited companies also?

Ans :

Yes,

It is applicable to EVERY Company if ANY ONE of the following conditions during ANY financial year satisfies:

a) Turnover > Rs 1000 cr. OR

b) Net worth > Rs. 500 cr. OR

c) Net Profit > Rs. 5 cr.

FAQs

2) Whether is Compulsory to have Corporate Social Responsibility Committee even if company has Separate Expenditure Committee who approves the major expenditure?

Ans :

Yes,

As per Section 135 (1) of the Companies Act, 2013, says

“Every company ...........shall constitute Corporate Social Responsibility Committee of the Board............”

Hence, its compulsory to have Corporate Social Responsibility Committee of the Board.

Its constitution includes :

Three or more board members out of which at least one director shall be an independent director.

FAQs

3) What are the activities to be included in CSR?

Ans:

Schedule VII of the Companies Act,2013, specifies CSR

activities. Schedule states “Activities which may be

included in CSR policy are as follows :Eradication of hunger and poverty Promotion of education Promotion of gender equality and women empowerment Health - reducing child mortality, improving maternal health, combating HIV, AIDS, malaria Employment enhancing vocational skills Contribution to PM's fund or other fund set up by central govt or the state govts for socio-economic development and relief and funds for the welfare of SC, ST, backward classes, minorities and women Ensuring environmental sustainability Social business projects Such other matters as may be prescribed

FAQs

4) List of activities in Schedule VII are illustrative or mandatory activities to be included in CSR?

Ans:Schedule VII of the Companies Act,2013 states “Activities which may be included in CSR policy”

where as

Clause states “CSR Policy which shall

indicate………activities as specified in Schedule VII.There is conflicting view - As per the language , it is mandatory at the same time it is to be

noted that Mr. Sachin Pilot , Hon’ble Minister of Corporate Affaires at an event held by corporate body CCI on 04th October,2013 stated that he was going to replace the word as mentioned in Schedule VII from “such other manner as may be prescribed” to “ as the company deems fit”. From this one may take a view that it is illustrative and not mandatory. But the same is yet to be clarified.

Also note that the in reckoning spending of 2% of the “average net profit”; donation to charities, political donations and donations to National Defence Fund shall not be counted.

FAQs

5) If you have a CSR activity in which you open a school and if you make a profit. Is it a CSR activity?

Ans:

Hon’ble Minister of Corporate Affaire while replying the debate on the Bill in Lok Sabha on 18-12-2012 clarified that certainly it will not be a CSR activity. The idea is not to make profit from a CSR budget.

The idea is to give better quality of life to the people that you are working along with.

FAQs

5) Would CSR spending be allowed as a Deduction under Income Tax Act?

Ans: It may be viewed as an Appropriation of profit and hence, not allowable at the same time one may also take another view that is it an overriding obligation created by law, although computed with reference to profits, and hence, allowable.

Examples :

-Maysore Kirloskar Limited(Kar)

- Even if expenses is a donation, it is yet deductible u/s 37(1).

-HPCL(Mum ITAT)

- Expenses on 20-point programme at instance of Govt., allowable since done as

a responsible corporate citizen.

However, Tax Treatment of CSR spend will be in accordance with the IT Act, as may be notified by CBDT.

FAQs

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