Monday, February 5, 2024

Corporate Social Responsibility (CSR) Compliance and Activities - Part 2

Understanding of Corporate Social Responsibility (CSR) requirements, duties, reporting, policy, and permitted activities, as well as penalties for non-compliance, I've provided a simplified explanation below, including a table to summarize the permitted CSR activities:

Simplified Explanation of CSR Requirements

CSR Committee Requirements:

  • Companies must have a CSR Committee if CSR rules apply to them.
  • This committee should have at least three directors, with at least one being independent.
  • If a company is private and doesn’t need an independent director, it doesn’t need one for its CSR Committee.
  • A private company with only two directors can have a CSR Committee with these two directors.
  • Foreign companies need a CSR Committee with at least two people, one of whom must be in India to handle documents.
  • Any company with unspent CSR funds must have a CSR Committee.

Duties of the CSR Committee:

  • The Committee creates and oversees the CSR policy, which outlines the company's CSR activities.
  • It decides how much money to spend on these activities.
  • It also makes sure the policy is followed and reports on it.

CSR Reporting:

  • Companies must include a CSR report in their annual report, detailing their CSR activities and spending.

CSR Policy:

  • The CSR policy lists the activities the company plans to do, which should not be part of its normal business.
  • The policy should be available on the company's website.
  • Companies can work together on CSR projects but must report on them separately.

List of Permitted CSR Activities: I've included a table below to summarize the activities companies can engage in as part of their CSR initiatives.

Fines for Not Following CSR Rules:

  • Companies that don't follow CSR rules can be fined up to Rs.1 crore.
  • Officers of the company can be fined up to Rs.2 lakh.

Why CSR?

  • CSR is about companies helping solve social, economic, and environmental problems. It’s mandatory because it ensures that companies contribute to society, not just make profits.

FAQs (Simplified):

  • Why CSR is mandatory? To ensure companies contribute to societal good.
  • How much to spend on CSR? At least 2% of net profits over the last three years.
  • Do Section 8 companies (non-profits) need to follow CSR? Yes, if they meet certain financial criteria.
  • What doesn’t count as CSR? Normal business activities, overseas activities (with some exceptions), political donations, benefits for employees, and activities required by law.
  • Government’s role in CSR? The government checks company reports for compliance.
  • Can excess CSR be carried forward? Yes, for up to three years.
  • What about CSR in local areas? Companies should prefer local areas but are not limited to them.

Permitted CSR Activities Table:

Sr. No.CSR Activities
1Eradicating hunger, promoting healthcare, and sanitation
2Education and employment enhancement
3Gender equality, empowering women, facilities for senior citizens
4Environmental sustainability, animal welfare
5Protection of heritage, art and culture
6Benefit for armed forces veterans, their dependents
7Supporting rural and national sports
8Contributions to government funds for socio-economic development
9Supporting incubators, research in science, technology
10Contributions to public-funded universities, labs for research
11Rural development projects
12Slum area development
13Disaster management and relief

This table and the simplified explanation cover the essentials of CSR as mandated by law, focusing on the formation of CSR Committees, their duties, reporting requirements, and the types of activities that qualify as CSR efforts.