csr in india an overview

CSR IN INDIA

An overviewBy,

CS ANJAN KUMAR ROY, FCS

PAST CHAIRMAN – ICSI EIRC

ANJAN KUMAR ROY & CO. Company Secretaries. DPS Business Centre. 9A Sebak Baidya Street. Kolkata.

Ph. Nos 9830201949 and 9831891949

2/24/2015 2

Social Responsibility –

certain basic issues• What is the Social Responsibility of the

Government?

• What is the Social Responsibility of the

Corporate sector?

• Government Vs Corporate Sector

• What is the basic objective of taxation?

• What is the scenario in other countries?

Legislating Social

Responsibility – travel path• Corporate Social Responsibilities

Voluntary Guidelines – 2009

• DPE guidelines for CPSUs

• National Voluntary Guidelines on Social,

Environmental & Economic

Responsibilities of Business - 2011

• Companies Act 2013 – 01/04/2013

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CA 2013 - Applicability

• Section 135 applicable to Companies with

- Net worth Rs. 500 crore or more,

- Turnover Rs 1000 Crore or more or

- Net Profit Rs. 5 Crore or more

during any financial year

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CA 2013 - CSR Committee

Composition• At least 3 directors, one of whom should

be an independent director

• In a company where appointment of an

independent director is not mandatory

• CSR committee of a private company

having only two directors can have only

two members

• CSR committee would be a committee of

the board2/24/2015 5


Composition• CSR committee of a foreign company shall

have at least 2 members, one of whom

should be person resident in India,

authorized to receive documents, notice

etc {380(1)(d)}

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Role- recommend the CSR policy

- recommend the amount of expenditure

-- Monitor CSR policy

- Institute transparent monitoring

mechanism

- Responsibility Statement to be submitted

along with Annual Report

- Chairman CSR Committee to sign the

Annual Report2/24/2015 7

CA 2013 – CSR Policy and

CSR committee• CSR Committee to recommend the policy

• CSR committee to recommend the amount

of expenditure

• CSR committee to monitor the policy

• CSR committee to institute monitoring

mechanism

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CA 2013 – CSR Policy and

Board• Board to approve the CSR policy

• Board to ensure implementation

• Contents of the policy to be disclosed in

the Board’s Report and to be displayed

on the company web site

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CA 2013 – CSR Policy

Contents• Shall indicate the activities to be

undertaken by the company specified in

schedule VII

• Activities in CSR Policy to relate to Sch VII

• CSR policy to specify that the surplus of

the CSR projects shall not form part of

business profit

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CA 2013 – CSR expenditure

• At least 2% of average net profit of

preceding 3 financial years in every

financial year

• Average Net Profit shall be calculated as

per Section 198 of Companies Act 2013

• It shall not include the net profit of an

overseas branch or branches, whether

operated as separate company or

otherwise2/24/2015 11

CA 2013 – CSR expenditure

• It shall not include dividend received form

such other companies in India, which are

covered under Section 135 and complying

with the applicable provisions

• In case Net profit calculated as per CA

1956, no need to recalculate

• Net profit of a foreign company shall be as

per Section 381 read with section 198

2/24/2015 12

CA 2013 – CSR Activities

• Must relate to Schedule VII – sec 135

• Not limited to activities specified in

Schedule VII – definition of CSR Rules

• Must relate to Schedule VII with wider

interpretations - General Circular No.

21/2014 dated 18/06/2014

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• Not be considered as CSR activity

- One of events, such as marathons,

awards, charitable contributions,

advertisements, sponsorships at TV etc.

- statutory payments

- Normal course of business

- for the benefit of employees/their families

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• Not to include

- direct/indirect contribution to political

parties under sec 182

- CSR activities out side India

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• To be considered as CSR activity

- as per approved CSR policy

- Ongoing activities falling within the ambit

of schedule VII would also qualify

- Approved CSR activities can be

undertaken by

- registered trust

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- registered society

- company set up by the company

- company set up by holding/subsidiary

- Collaborative CSR projects with other

companies, so that the respective CSR

committees are able to separately

report

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- Expenditure by Foreign holding co –

in India – routed through Indian

subsidiary – Indian subsidiary is

covered by sec 135

- contribution to corpus of trust / society

/ sec 8 company – formed exclusively

for CSR activities – corpus for activity

under schedule VII

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schedule VII• eradicating hunger, poverty and

malnutrition, promoting preventive health

care and sanitation including contribution

to the Swach Bharat Kosh set-up by the

Central Government for the promotion of

sanitation and making available safe

drinking water; [vide Notification No.

G.S.R. 741(E), dated 24-10-14]

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schedule VII• promoting education, including special

education and employment enhancing

vocation skills especially among children,

women, elderly, and the differently abled

and livelihood enhancement projects;

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schedule VII• promoting gender equality, empowering

women, setting up homes and hostels for

women and orphans; setting up old age

homes, day care centres and such other

facilities for senior citizens and measures

for reducing inequalities faced by socially

and economically backward groups;

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schedule VII• ensuring environmental sustainability,

ecological balance, protection of flora and

fauna, animal welfare, agro forestry,

conservation of natural resources and

maintaining quality of soil, air and water

including contribution to the Clean Ganga

Fund setup by the Central Government for

rejuvenation of river Ganga; [vide

Notification No. G.S.R. 741(E), dated 24-

10-14]2/24/2015 22


schedule VII• protection of national heritage, alt and

culture including restoration of buildings

and sites of historical importance and

works of art; setting up public libraries;

promotion and development of traditional

arts and handicrafts;

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Schedule VII• measures for the benefit of armed forces

veterans, war widows and their

dependents;

• training to promote rural sports, nationally

recognized sports, Paralympic sports and

Olympic sports;

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Schedule VII• contribution to the Prime Minister's

National Relief Fund or any other fund set

up by the Central Government for socio-

economic development and relief and

welfare of the Scheduled Caste, the

Scheduled Tribes, other backward

classes, minorities and women;

2/24/2015 25


Schedule VII• contributions or funds provided to

technology incubators located within

academic institutions which are approved

by the Central Government;

• rural development projects;

• slum area development [vide Notification

No. G. S. R 568(E), dated 06-08-14]

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CA 2013 - CSR Reporting

• By Indian Companies covered by 135

- w.e.f financial years commenced on or

after 01/04/2014, Board’s Report to

include report on CSR

• By Foreign companies covered by 135

- Balance Sheet under section 381 to

include an annexure on CSR activity

2/24/2015 27

CA 2013 – Reporting format

1. A brief outline of the company’s CSR policy,

including overview of projects or programs

proposed to be undertaken and a reference

to the web-link to the CSR policy and

projects or programs.

2. The Composition of the CSR Committee.

3. Average net profit of the company for last

three financial years.

4. Prescribed CSR Expenditure (two per cent.

of the amount as in item 3 above). 2/24/2015 28


5 Details of CSR spent during the

financial year.

• (a) Total amount to be spent for the

financial year;

• (b) Amount unspent , if any;

• (c) Manner in which the amount spent

during the financial year is detailed below.

•2/24/2015 29

CA 2013 – Reporting format(1) (2) (3) (4) (5) (6) (7) (8)

S.No CSR project or

activity

identified.

Sector

In which

the Project

Is covered.

Projects or

programs

(1) Local area

or other

(2) Specify

the State and

district where

projects or

programs was

undertaken.

Amount

outlay

(budget)

project

or programs

wise.

Amount

spent on the

projects or

programs

Sub heads:

(1) Direct

expenditure

on projects

or programs.

(2) Overheads:

Cumulative

expenditure

upto to the

reporting

period.

Amount spent:

Direct or

through

Implementing

agency.

1

2

3

TOTAL

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6. In case the company has failed to spend the

two per cent of the average net profit of the

last three financial years or any part

thereof, the company shall provide the

reasons for not spending the amount in its

Board report.

7. A responsibility statement of the CSR

Committee that the implementation and

monitoring of CSR Policy, is in compliance

with CSR objectives and Policy of the

company.2/24/2015 31

CA 2013 – signatories to CSR

Report1 CEO or MD or Director and

2 Chairman CSR Committee and

3 Person specified under clause (d) of sub-

section (1) of section 380 of the Act

(wherever applicable)

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CSR Expenditure – Tax

implication• Companies Act 2013 prescribes that

certain companies (refer slide 4), covered

by section 135 has to spend at least 2% of

average net profit of preceding 3 F Y.

2/24/2015 33


implication• Companies Act 2013 does not clearly

indicate whether CSR expenditure would

be part of PAT or PBT

• However, the honourable finance minister,

while delivering the Budget on 10/07/2014

made it absolutely clear by stating that

- “CSR expenditure, being an application

of income, is not incurred wholly and

2/24/2015 34


implicationexclusively for the purposes of carrying on

business. As the application of income is

not allowed as deduction for the purposes

of computing taxable income of a

company, (the) amount spent on CSR

cannot be allowed as deduction for

computing the taxable income of the

company.”

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implication• Further the Finance Act 2014, vide Section

13, modifies Section 37 of the Income Tax

Act 1961, as follows;

• - In section 37 of the Income-tax Act, in

sub-section (1), the Explanation shall be

numbered as Explanation 1 thereof and

after Explanation 1 as so numbered, the

following Explanation shall be inserted

2/24/2015 36


implication• with effect from the 1st day of April, 2015,

namely:—

“Explanation 2.—For the removal of

doubts, it is hereby declared that for the

purposes of sub-section (1), any

expenditure incurred by an assessee on

the activities relating to corporate social

responsibility referred to in section 135 of

the Companies Act, 2013 2/24/2015 37


implicationshall not be deemed to be an expenditure

incurred by the assessee for the purposes

of the business or profession.”.

• As such, with effect from assessment year

2015-16, CSR expenses can not form part

of business expenses.

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implication• However, contributions to PMRF and other

funds and other approved schemes would

qualify for deductions under 80G and other

applicable provisions of the Income Tax

Act 1961

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CSR – Certain Issues not

addressed in the act• What would be the treatment of the

unspent amount?

• How many times in a year the CSR

Committee must meet?

• Who should be the Chairman of the CSR

Committee?

• What would be the quorum for a meeting

of the CSR Committee?

2/24/2015 40

CSR - Understanding the

Legislative Intent• Legislation of CSR started in the year

2009. India is the first country in the world

to legislate CSR. Corporate Social

Voluntarily Guidelines, 2009 came in the

year 2009;

• Department of Public Enterprises (DPE)

issued Guidelines for CPSUs in the year

2009;

2/24/2015 41


Legislative Intent• National Voluntary Guidelines on Social,

Environmental and Economic

Responsibility of Business, 2011 came in

the year 2011;

• Whereas policy for the Government for

Private Companies has been “ Do or

Explain Basis” for CPSUs it is strict

2/24/2015 42


Legislative Intent• Corporate Social Responsibility Voluntary

Guidelines in 2009, softly proposed CSR

to the Corporate sector;

• National Voluntary Guidelines on Social,

Environmental and Economic

Responsibilities of Business, 2011 added

sustainability as a factor and bought the

concept near to the concept of CSR in the

International arena;2/24/2015 43


Legislative Intent• Companies Act, 2013 specify minimum

two percent as a CSR spend;

• Finance Act, 2014 confirmed without

ambiguity that expenditure on CSR would

be an appropriation of profit;

• Recently, MCA has constituted a high

power Committee to ensure CSR in India.

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BIG THANKS FOR BEING A

WONDERFUL AUDIENCE

Last but not the least……….

2/24/2015 45

csr in india an overview

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