MCA has
issued a Circular No.01/2016 dated
January 12, 2016 on Frequently Asked Questions with regard to Corporate
Social Responsibility under section 135 of the Companies Act, 2013 .
Sec
135 of the companies Act 2013,Schedule VII of the Act and Companies CSR policy Rules,2014
read with General Circular dated 18.06.2014 issued by the MCA provide the broad
contour within which eligible companies are required to formulate
their CSR policies including activities undertaken and implement the same in
the right earnest.
CSR Provisions of
the companies 2013, is applicable to the companies registered under the companies Act and
satisfies any of the following condition
during the financial year.(Financial
year means as referred under sub section (1) of section 135 of the Act ,in any
of the 3 preceding financial year).
- Net Worth of Company is Five hundred Crore or more.
- Turnover of company is one Thousand Crore or more.
- Net profit of company is Five Crore or more.
Further as per the
CSR Rules, the provisions of CSR are not only applicable to Indian companies,
but also applicable to branch and project offices of a foreign company in India.
Note - I) Net profit of the company taken will be the profit before Tax(PBT).
II) Every qualifying company requires
spending of at least 2% of its average net profit for the immediately preceding
3 financial years on CSR activities.
III) An excess amount spent in excess of 2% the average net profit of the thre preceding years by the
company cannot be carried forwarded to the subsequent years and adjusted
against that years CSR expenditure.
Iv) Further, the
qualifying company will be required to constitute a committee (CSR Committee)
of the Board of Directors consisting of
3 or more directors.
Expenditure spent by the company towards CSR shall not deemed to be an expenditure
incurred by the assessee for the purpose of business or profession .So that amount
of CSR cannot be claimed as business expenditure by the company.
No specific tax
exemption can be availed for the
expenditure made for the purpose of
CSR.As per the finance Act,2014 also clarifies that expenditure on CSR does not
form part of business expenditure. While no specific tax exemption has been extended to
expenditure incurred on CSR, spending on several activities like contributions
to Prime Minister’s Relief Fund, Scientific Research, Rural development
projects, skill development projects, agricultural extension projects, etc.
which find place in Schedule VII, already enjoy exemptions under different
sections of the Income Tax Act, 1961.
The activities that can be done by the company
to achieve its CSR obligations include :
Eradicating extreme hunger and poverty.
Promotion of education, promoting gender
equality and empowering women, reducing child mortality and improving maternal
health.
Combating human immunodeficiency virus,
acquired, immune deficiency syndrome, malaria and other diseases.
Ensuring environmental sustainability,
employment enhancing vocational skills, social business projects, contribution
to the Prime Minister's National Relief.
Fund or
any other fund set up by the Central Government or the State Governments for
socio-economic development and relief.
Funds for the welfare of the Scheduled Castes,
the Scheduled Tribes, other backward classes, minorities and women and such
other matters as may be prescribed.
Otherwise, The
activities performed by the company only for the health of the company is not
regarded as Expenditure towards the CSR. The expenditure on following activities
will not be considered as CSR expenditure.
i)The CSR programs or activities that
benefit only to the employees of the companies and their families.
ii)Activities such as Awards/charitable
contribution/advertisement /Sponsorships of TV program.
iii)Contribution made directly to indirectly
to the political parties.
iv)The project or program or activities
undertaken outside India.
v)Expenses made by the company for the fulfillment
of Statutory Liabilities(Labor Laws, Land Acquisition Act 2013,).
Major Points to remember for CSR
Compliance:
The company can also make the annual report of
CSR activities in which they mention the
average net profit for the 3 financial years and also prescribed CSR expenditure but if
the company is unable to spend the minimum required expenditure the company has
to give the reasons in the Board Report for non-compliance so that there are no
penal provisions are attracted by it.
A contribution of money to a trust /Society/section
8 companies by a company be treated as CSR expenditure of company.
(a) The Trust/Society /section-8 company is
created exclusively for the undertaking CSR activities.
(b) Whether the corpus is created exclusively for
a purpose directly related a subject covered in Schedule VII of the Act.
Government has no
role to play in monitoring implementation of CSR by companies. The main spirit
of the law is not monitor but to generate conducive environment for enabling
the corporate to conduct themselves in socially responsible manner.
The holding or
subsidiary of the company does not have
to comply with section 135(1) unless the holding or subsidiary itself
fulfils the criteria.
The Involvement
and Contribution of employees in CSR
activities of the company will no doubt generate interest /pride in CSR work
and promote transformation from corporate social responsibility as an
obligation to socially responsible
corporate in all aspects of their functioning .Therefore, The company will
encouraged to involve their employees in CSR activities.
The any money
spent by company in kind Will not be
treated as CSR expenditure. It means the company have to spend in cash.
The provision of
this scheme is indeed to involve the corporate in discharging their social
responsibility with their innovative ideas and management skills and with
greater efficiency and better outcomes .Therefore, CSR should not be
interpreted as a source of financing the resources gap in Government Scheme . Use of corporate innovations and
management skills in the delivery of public goods is at the core of CSR Implementation
by the companies .CSR projects should have a larger multiplier
Lastly, CSR
is based on the ideology of give and take. Companies take resources in
the form of raw material, human resources etc
from the society and the companies are giving something back to the
society. This concept says that 98% of the profit will be distributed to the
shareholders where as 2% will be distributed for the health of the company. So that,
Society will become a stake holder of the company.
The board of
directors of the company after taking the recommendation of CSR committee
approve their CSR policy for the company
will have to be displayed in website of the company.
Consequently, CSR is an appropriation of
profit rather than expenses. The MCA has clarified
the doubt regarding the corporate social responsibility. Hence, Now that things
have been clarified, one can refer the same and proceed accordingly.
Further amendment has been done by MCA by issue of FAQs vide General Circular No.01/2016, The following
changes are presented in tabular form.
S.N.
|
As per old Rules
|
As per New Rules
|
1
|
While
determining the eligibility for qualifying for CSR consider 3 preceding
financial year.
|
While determining the eligibility for qualifying for
CSR, consider preceding financial year.
|
3.
|
The companies was required to have independent directors to constitute
a CSR committee.
|
The requirement for such companies to have
independent directors to be removed.
|
3..
|
Earlier it was provided that a company even if
ceases to be eligible for CSR to undertake
it for a minimum of 3 years
|
This to be amended so that once a company ceases to
be eligible it need not spend on CSR.
|
Contributed by Mr Roshan Paudel ( CA Finaist )
