Corporate Social Responsibility - Section 135 of Companies Act 2013

Corporate Social Responsibility - Section 135 of Companies Act 2013

Corporate Social Responsibility | Section 135 of Companies Act 2013

It is mandatory for every company fulfilling any of the following three conditions in the preceding financial year to contribute a certain amount towards Corporate Social Responsibility (CSR) activities.

  • Net worth of more than Rs.500 crore
  • Turnover of more than Rs.1000 crore
  • Net profit of more than Rs.5 crore

The company shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director. Any unlisted public company or private company, for which appointing an independent director is not mandatory under the provisions of the Act, can have its CSR Committee without an independent director.

The Board of such a company shall ensure that the company spends in every financial year at least 2% of average net profits of a company made during three immediately preceding financial years in pursuance of its CSR policy. CSR policy shall point out the activities to be undertaken by the company as enumerated in Schedule VII of the Act. As per rule 9, the Board of Directors should disclose the following details in their website:

(i) Composition of the CSR Committee;

(ii) CSR Policy; and

(iii) Projects approved by the Board.

The computation of net profit for CSR is done as per Section 198 of the Companies Act, 2013. Accordingly, certain additions/deletions (adjustments) have to be made to calculate a company’s net profit. It mainly excludes capital payments/receipts, income tax and set-off of past losses. If a company has not completed three financial years since its incorporation, the average net profits will be calculated based on the financial years since its inception. If the company fails to spend the specified amount, the Board must provide an explanation for not spending the amount in its report. A company can transfer any unspent CSR amount to the specified funds. If the unspent amount is related to an ongoing project, the company can transfer it to the 'Unspent Corporate Social Responsibility Account' in any scheduled bank within 30 days from the end of the financial year.

Compliance with Corporate Social Responsibility requirements is specific to each company. A holding or subsidiary company needs to comply with CSR provisions only if it meets the eligibility criteria prescribed under Section 135 of Companies Act 2013 . Companies can implement projects directly using their resources and workforce or through registered trusts, foundations, or Section 8 companies with a proven track record in handling similar projects or activities.

To understand the nuances to fulfil CSR regulations efficiently, feel free to contact the ASC Group.

Also, Check "Private Placement- Section 42 of the Companies Act 2013"


Leave a Reply

Your email address will not be published. Required fields are marked *