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All about Corporate Social Responsibility (“CSR”)

February 23, 2017

‘Doing good is not a private act between a bountiful giver and a grateful receiver, it is a prudent social act.’ – Benjamin Franklin

The practice of Corporate Social Responsibility (“CSR”) as a paradigm for organizations and businesses to follow has evolved from its early days as a slogan that was considered trendy by some organizations following it to the present-day realities of the 21st century where it is no longer just fashionable but a business requirement to be socially responsible.

Corporate Social Responsibility is an important business strategy because, to some extent a consumer wants to buy products from companies he trusts, a supplier wants to form business partnership with companies he can rely on, an employee want to work for a company he respects, other concerns want to establish business contacts with companies seeking feasible solutions and innovations in areas of common concern.


  • The Companies Act, 2013 (“the Act”) does not define the term CSR.But as per rule 2(c) of the CSR Rules “Corporate Social Responsibility means and includes but is not limited to:
    1. Projects or programs relating to activities specified in Schedule VII of the Act; or
    2. Projects or programs relating to activities undertaken by the board of directors of a company (Board) in pursuance of recommendations of the CSR Committee of the Board as per declared CSR Policy of the company subject to the condition that such policy will cover the subjects enumerated in Schedule VII of the Act.
  • CSR is the way firms integrate social, environmental and economic concerns into their values, culture, decision making, strategy and operations in a transparent and accountable manner and thereby establish better practices within the firm, create wealth and improve society.
  • The World Business Council for Sustainable Development describes CSR as the business contribution to sustainable economic development.


  1. Business uses scarce resources of society
  2. Business often adversely affects environment
  3. Problems are too vast and complex- government efforts need to be supplemented by business
  4. Social and environmental problems can threaten the survival of business
  5. In order to improve corporate image
  6. To increase the media coverage
  7. Attract and retain the investors
  8. To increase the foreign corporate participation


Section 135 of the Act provides for the applicability of the CSR provisions on all the corporates..

Sub-section (1) of the section lays down that every company having:

  • net worth of Rs. 500 Crore or more; or
  • turnover of Rs. 1000 Crore or more; or
  • net profit of Rs. 5 Crore during any financial year

shall be required to constitute a CSR Committee of the Board consisting of three (3) or more directors, out of which at least one (1) director shall be an independent director. Rule 3 of the CSR Rules specifies that every company which ceases to be a company covered under section 135 as per the limits specified there under for three consecutive financial years shall not be required to constitute a CSR Committee and comply with the provision of section 135, till such time that it meets the criteria specified.


Rule 3(1) provides that CSR is applicable to-

  1. Every company including its holding or subsidiary; and in case where the company fulfills the criteria specified in sub-section (1) of section 135 of the Act. The net worth, turnover or net profit of a foreign company will be prepared in accordance with the requirements under the Act.


A foreign company defined under clause (42) of section 2 of the Act having its branch office or project office in India which fulfills the criteria specified in sub-section (l) of section 135 of the Act shall comply with the provisions of section 135 of the Act and the rules.

The net worth, turnover or net profit of a foreign company under the Act shall be computed in accordance with balance sheet and profit and loss account of such company prepared in accordance with the provisions of clause (a) of sub-section (1) of section 381 and section 198 of the Act.


The Ministry has received various references and representation from stakeholders seeking clarifications on the provisions under Section 135 of the Companies Act, 2013.

1. Can the CSR expenditure be spent on the activities beyond the Schedule VII?

Ans: The statutory provision and provisions of CSR Rules, 2014, is to ensure that while activities undertaken in pursuance of the CSR policy must be relatable to Schedule VII of the Companies Act 2013, the entries in the said Schedule VII must be interpreted liberally so as to capture the essence of the subjects enumerated in the said Schedule.

2. What tax benefits can be availed under CSR?

Ans: No tax exemptions.

3. What are the additional items requested to be included in Schedule VII or to be clarified as already being covered under Schedule VII of the Act?


    • One-off events such as marathons/ awards/ charitable contribution/ advertisement/ sponsorships of TV programmes etc. would not be qualified as part of CSR expenditure.
  • Contribution to corpus of a Trust/ Society/ Section 8 Company will qualify as CSR expenditure as long as-
    1. the trust/society/section 8 company is created exclusively for undertaking CSR activities or;
    2. where the corpus is created exclusively for a purpose directly relatable to a subject covered in Schedule VII of the Act.
  • Expenses incurred by companies for the fulfillment of any Act/ Statute of regulations (such as Labour Laws, Land Acquisition Act etc.) would not count as CSR expenditure under the Companies Act.
  • Expenditure incurred by foreign holding company for CSR activities in India will qualify as CSR spend of the Indian subsidiary if, the CSR expenditures are routed through Indian subsidiaries and if the Indian subsidiary is required to do so as per section 135 of the Act
  • Salaries paid by the companies to regular CSR staff as well as to volunteers of the companies (in proportion to company’s time/hours spent specifically on CSR) can be factored into CSR project cost as part of the CSR expenditure.

4. What is the meaning of “Any financial year” ?

Ans: “Any financial year” referred under Sub-Section (1) of Section 135 of the Act read with Rule 3(2) of Companies CSR Rule, 2014, implies ‘any of the three preceding financial years’.


The Board’s Report pertaining to a financial year commencing on or after April 1, 2014 of a company mandated to do CSR, shall include an in its annual report on CSR containing particular as specified under the Rules (See Annexure 5).

Further, where the company is a foreign company, the balance sheet filed under sub clause (b) of sub-section (1) of the section 381 of the Act shall contain an annexure containing the report on CSR.


The CSR computation needs to be as follows:

For instance, the Company needs to prepare Annual Report (Directors Report) for the FY 2015-16, then the company needs to make following necessary adjustments for the three immediately preceding financial years.

Step 1:

2014-15 2013-14 2012-13
Profit before tax as per P&L Statement xxxx xxxx xxxxx
Add the following items if debited to P&L Statement before
arriving profit before tax
Managerial remuneration
Provision for Bad doubtful debts - - -
Loss on sale/disposal/discarding of assets. - - -
Loss on sale of investments - - -
Provision for diminution in the value of investments - - -
fixed assets written off - - -
Fall in the value of foreign currency monetary assets - -
Loss on cancellation of foreign exchange contracts - - -
Write off of investments - - -
Provision for contingencies and unascertained liabilities - - -
Lease premium written off - - -
Provision for warranty spares/supplies - - -
Infructuous project expenses written off - - -
Provision for anticipated loss in case of contracts - - -
Loss on sale of undertaking - - -
Provision for wealth tax - - -
compensation paid under VRS - - -
Total (A) xxxx xxxx xxxxx
Less the following if credited to P&L statement for arriving at

profit before tax: business compromises of buying &
 selling any such property or asset) and revenue profit

(difference between

original cost and WDV should not be deducted)

Capital profit on sale/disposal of fixed assets(the same should be added if the co., - - -
Profit on sale of any undertaking or its part - - -
Profit on buy back of shares - - -
Profit/discount on redemption of shares or debentures - - -
Profit on sale of investments - - -
Compensation received on non-compete agreements - - -
Write back of provision for doubtful debts - - -
Write back of provision for doubtful advances - - -
Appreciation in value of any investments - - -
Compensation received on surrender of tenancy rights - - -
Profit on sale of undertaking - - -
Write back of provision for diminution in the value of investments - - -
Profit on sale of forfeited shares & shares of subsidiary/

associated companies

- - -
Total (B) xxxx xxxx xxxxx
A -B xxxx xxxx xxxxx


Step 2:

After the Calculations, the Company needs to take an average of “A-B” for 3 years.

Step 3:

Compute 2% of the average amount calculated in Step 2.


No specific penal provisions have been specified for non-compliance.

Though, Penalties can be levied under two (2) different provisions.

Section 134(3) (o) & Section 134(8)

  • Section 134(3)(o): to disclose all the relevant information about its CSR policy and its implementation on an annual basis and reasons thereof.
  • Section 134(8): Penalties for not discharging the duty as mentioned above are:
    1. Fine, not less than fifty thousand rupees,  may extend to twenty-five lakh rupees; and
    2. Every officer of the company in default shall be punishable with imprisonment for a term which may extend to three years; or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees,or with both.

Disclosure of the reason for not spending the said amount is a compliance of the provisions. Non-disclosure or absence of the details about the CSR policy and its implementation in the Boards’ report would attract penalties as above.


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