India holds the position of being one of the first countries in the world to have made Corporate Social Responsibility mandatory with the amendment of the Companies Act, 2013 in early 2014. The government had introduced the concept of CSR because it wanted corporations in our country to become more responsible towards society and towards its stakeholders simultaneously. CSR offers real opportunities for corporations to actively contribute to various activities which indirectly or directly help the welfare of our society. These days, many large corporations are using voluntary initiatives such as environmental certification, fair trading schemes, social audits, etc to improve their environmental and social performance. Only if these corporations and government work together is when they can bring about dramatic changes in the welfare schemes of India.
Every company usually has a Corporate Social Responsibility Committee on the board and all the funds that are provided under the Corporate Social Responsibility are primarily and solely for the purpose of tackling social development issues and making a positive impact on the living standards of hundreds and thousands of economically poor and disadvantaged people of our society so that they too can live a dignified and productive life.
What exactly is CSR and the law relating to it?
CSR can be defined as the funding process through which various non-for-profit and non-governmental organizations can get financial and other assistance from the corporate sector. As per sub-section 1 of section 135 of the companies Act 2013 – it is a mandatory provision to provide a contribution of 2% of the average net profit of a corporation. Under this act, the CSR provision is applicable to every company that has a net worth of rupees 500 crores or more, or a net profit of rupees 5 crores or more during any financial year, or subsequently a turnover of rupees 1000 crores or more. Top earning public sector units may be asked to double their expenditure on CSR as per the provisions of the new guidelines. PSUs that have a net profit anywhere between rupees 100 to 500 crores have to earmark 2-3% of their total income.
The government of India notified amendments to the companies rules, 2014 and section 135 of the companies act, 2013 on January 22nd, 2021. These amendments basically meant that-
- Certain activities cannot be included as part of a company-eligible CSR spend. These activities are political contributions, sponsorship activities, and fulfillment of statutory obligations and activities undertaken outside India.
- Activities related to covid-19 and the acquisition or creation of a capital asset not owned by the company can be now included as CSR.
- Administrative overheads can now be considered as part of the program itself, thereby allowing for greater allocation of resources for these activities.
- Any unspent CSR funds remaining at the end of a financial year should be transferred either to an unspent CSR account or schedule V11 fund or on the same project which gave rise to the surplus.
- If a company has spent amounts more than the mandatory two percent on CSR, the company can set off such excess amounts against the CSR spending in the next three financial years.
- Mandatory impact assessment of CSR projects is a requirement now for companies that have an average spend of 10 crore rupees or more in the past three financial years and for projects that have budgets of 1 crore and more rupees. An independent agency must be appointed to undertake the impact assessment.
- Mandatory disclosure on the website, CSR committees, CSR Policy, and annual disclosures are now necessary. Monetary penalties for non-compliance have been introduced too.
- CSR rules have allowed international organizations to assist and play a role in the CSR ecosystem.
Amendments to the companies rules, 2014 and section 135 of the companies act, 2013 on 11th February 2022
The amendment in February 2022 significantly redefines the CSR responsibility regime for Indian corporations. The amended rules mandate a company covered u/s 135 (1) of the Companies Act, 2013 to furnish a report on Corporate Social Responsibility in form CSR–2 to the Registrar for the preceding financial year (2020–2021) and onwards as an addendum to form AOC–4. To put it simply, certain classes of companies (1) are now statutorily required to file a comprehensive 11-page report giving details of the CSR amount spent in the three preceding financial years on ongoing projects. Additionally, the newly introduced form obligates the companies to provide justification if the company has failed to utilize their CSR funds.
The new form brings about a new dimension of accountability for the companies. Views regarding CSR expenditures have been the center of immense scrutiny in the past few years. The form is a deep dive into the CSR expenditures undertaken by a company and seeks to prevent the misuse of CSR as a money laundering/ self-financing tool.
While form CSR 2 looks to fill the gaps when it comes to transparent and sound CSR disclosures, it will add to the ever-increasing compliance cost and responsibilities.
CSR Expenditure FY 2020-21 (as per the official data from MCA)
Total no of companies – 8632
Total Amount spent on CSR – 20359 (INR Cr)
States and UTs covered – 37
Total no of CSR projects – 25373
Total development sectors – 29
CSR Spent – Top 10 States
Maharashtra, Gujrat, Karnataka, Delhi, Tamil Nadu, Uttar Pradesh, Andhra Pradesh, Odisha, Rajasthan, Haryana
CSR Spent – Top 10 Companies
Reliance Industries Limited, TCS, Tata Sons Private Limited, HDFC Bank Limited, ONGC, Indian Oil Corporation Limited, NTPC Limited, Infosys Limited, ITC Limited, Wipro Limited
To sum up this article, the CSR law and its recent amendments have had many wonderful effects on the social welfare of India, especially during the pandemic and post-pandemic times. CSR has helped the companies and their stakeholders to help in the development of a country’s economy on a macro-level.
CSR in India was legislated with the hope that it would bring about a change in the attitude of corporate institutions while helping the society at large and this hope is slowly being turned into positive outcomes with the help of new and refined amendments.