#12: CORPORATE SOCIAL RESPONSIBILITY: BUILDING A BETTER TOMORROW

As the year-end is approaching, make sure your company has made the necessary CSR contributions. This article will guide you on everything you need to know about CSR Policy, its applicability, and its implementation.

APPLICABILITY OF CSR:

The provision of CSR applies to EVERY COMPANY fulfilling any of the following conditions in the preceding financial year:

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

IMPLEMENTATION OF CSR:

• CSR Expenditure: The Board of Directors of every company for which the CSR provisions apply must ensure that the company spends in every financial year at least 2% of its average net profits made during the immediately preceding three financial years as per its CSR policy. If the company has not completed three financial years since its incorporation, it must spend 2% of its average net profits made during the immediately preceding financial years as per its CSR policy.

• Establish a CSR committee: Where the amount to be spent by the company under section 135(5) of the Act, exceeds Rs. 50 lakh, then it is mandatory for the company to constitute a CSR Committee consisting of at least three directors, with at least one being an independent director. The committee is responsible for formulating and recommending CSR policies, ensuring the implementation of CSR activities, and monitoring the spending.

TRANSFER AND USE OF UNSPENT AMOUNT ON CSR:

Points to be noted:

• The company must use the funds in the ‘Unspent CSR Account’ towards its obligations under the CSR policy within a period of three financial years from the date of the transfer.

• In a case where the company fails to utilise the funds at the end of the three financial years, the funds should be transferred to the specified fund mentioned in Schedule VII of the Act.

• Funds specified in Schedule VII of the Act for the purpose of CSR contribution are as follows:

(i)                  Swachh Bharat Kosh

(ii)                Clean Ganga Fund

(iii)               Prime Minister’s National Relief Fund (PMNRF)

(iv)               Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund

(v)                Any other fund set up by the Central Government and notified by the Ministry of Corporate Affairs, for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women.

CARRY FORWARD OF EXCESS AMOUNT SPENT ON CSR:

In case a company spends an amount in excess of the specified limit, then such excess amount spent can be carried forward to the subsequent years and adjusted against that year’s CSR expenditure.

If the company decides to adjust excess amount spent against future obligation, then an asset would have to be recognised to the extent of such excess amount spent.

If a company decides not to carry forward excess spend in full or in part, then excess amount would be recognised as an expense.

DISCLOSURES REGARDING CSR:

In Financial Statements: The General Instructions for Preparation of Statement of Profit and Loss under Schedule III to the 2013 Act requires a company to disclose the amount of expenditure on the CSR activities by way of a note to the statement of profit and loss.

In Board’s Report: As per rule 8(1) of the Companies (CSR Policy) Rules, 2014, the Board’s Report pertaining to any financial year, for a CSR-eligible company, shall include an annual report on CSR containing particulars specified in Annexure I or Annexure II of the said rules, as applicable.

To make things easier for you, we have this Annexure – For disclosure in board’s report format ready for you.

FAQ’s on CSR 

Hope this article was able to answer all your questions. If not, you can always contact us.

Contributed by: Arun Sharma, Atul Bhardwaj, Yash Jain