Statutory Requirements for CSR

Corporate Social Responsibility in India governed by section 135 of the Companies Act,2013, passed by both Houses of the Parliament, and by the President of India on 29 August 2013 lays down certain provisions for companies.

1. Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year 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.
2. The Board's report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee.
3. The Corporate Social Responsibility Committee shall
   • formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII.
   • recommend the amount of expenditure to be incurred on the activities referred to in clause (a).
   • monitor the Corporate Social Responsibility Policy of the company from time to time.
4. The Board of every company referred to in sub-section (1) shall—
   • after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company's website, if any, in such manner as may be prescribed.
   • ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.

5. The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy:

   Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities.

Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount.

Explanation

For the purposes of this section "average net profit" shall be calculated in accordance with the provisions of section 198.

Schedule 7 of the Companies Act lays down the priority areas which is indicative of the activities which companies can undertake as a part of their CSR initiatives.

Exemptions

Section 135 shall not apply for a period of five years from the commencement of business of a Specified IFSC public company vide notification no. 8(E) dated 04 January,2017.

Section 135 shall not apply for a period of five years from the commencement of business of a Specified IFSC private company vide notification no. 9(E) dated 04 January,2017.

Schedule VII

The Policy recognizes that corporate social responsibility is not merely compliance; it is a commitment to support initiatives that measurably improve the lives of underprivileged by one or more of the following focus areas as notified under Section 135 of the Companies Act 2013 and Companies (Corporate Social Responsibility Policy) Rules 2014:

Activities which may be included by companies in their Corporate Social Responsibility Policies Activities relating to:

Inserted vide Notification dated 24.10.2014

• Eradicating hunger, poverty and malnutrition, promoting health care including preventive health care and sanitation including contribution to the Swachh Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water.
• Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects.
• Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centers and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups.
• Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga;
• Protection of national heritage, art 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;
• measures for the benefit of armed forces veteran, war widows and their dependents.
• Training to promote rural sports nationally recognized sports and Olympic sports.
• PM Relief fund: 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 Castes, the Scheduled Tribes, other backward classes, minorities and women; and
• contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government;
• Rural development projects.
• Slum area development

Explanation

For the purposes of this item, the term 'slum area' shall mean any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force.

1. In item (i), after words "and sanitation", the words "including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation" shall be inserted;
2. In item (iv), after the words "and water "the words" including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga" shall be inserted;

Amount spent in above activities are qualified as CSR activities the interpretation of Sch. VII is broad and open and its scope is wide to help of Corporates.