Let’s look - at the CSR ACT Fundamentals!

Publised on: 24 - 09 -2018

With the passage of the Companies Act, 2013 the mandate for corporate social responsibility (CSR) has been formally introduced to the dashboard of the Boards of Indian companies. The industry has responded positively to the reform measure undertaken by the government with a wide interest across the public and private sector, Indian and multinational companies. The practice of CSR is not new to companies in India. However, what this Act does is bring more companies into the fold. Also, it is likely that the total CSR spends will increase. What is clear to many companies is that if this increased spending is to achieve results on the ground – which is the intent of the Act – then it needs to be done strategically, systematically and thoughtfully.
The draft rules provide a number of clarifications and while these are awaiting public comment before notification, some the highlights are as follows:

  • Surplus arising out of CSR activities will have to be reinvested into CSR initiatives, and this will be over and above the 2% figure
  • The company can implement its CSR activities through the following methods: - Directly on its own - Through its own non-profit foundation set- up so as to facilitate this initiative - Through independently registered non-profit organisations that have a record of at least three years in similar such related activities - Collaborating or pooling their resources with other companies.
  • Only CSR activities undertaken in India will be taken into consideration.
  • Activities meant exclusively for employees and their families will not qualify.
  • A format for the board report on CSR has been provided which includes amongst others, activity-wise , reasons for spends under 2% of the average net profits of the previous three years and a responsibility statement that the CSR policy, implementation and monitoring process is in compliance with the CSR objectives, in letter and in spirit. This has to be signed by either the CEO, or the MD or a director of the company.

Name of the Act: Companies (Corporate Social Responsibility Policy) Rules, 2014
Effective from: 01st April 2014
Applicable to: Every company, private limited or public limited
Amount to be spent on CSR activities: 2% of average net profit, if Criteria:
(1) Net worth is of Rs 500 crore; or
(2) Turnover is of Rs 1,000 crore; or
(3) Net profit is of Rs.5 Crore in last 3 years.
The introduction of CSR is certainly an important step towards ensuring social obligation for companies. It may be used as a useful tool by companies by undertaking certain programmes for the benefit of the society. Companies tend to be socially responsible towards the society through CSR initiatives. In other words, implementation of CSR policies is more of a moral pursuit of companies for social cause.