Corporate Social Responsibility (CSR) in India
1. Introduction
Corporate Social Responsibility (CSR) in India is a statutory obligation for certain companies under Section 135 of the Companies Act, 2013, read with the Companies (Corporate Social Responsibility Policy) Rules, 2014.
It is a unique case where CSR is not just a voluntary ethical practice but a legal compliance requirement.
CSR is aimed at making companies actively contribute to sustainable economic, social, and environmental development, beyond just making profits.
________________________________________
2. Applicability of CSR Provisions
CSR provisions apply to every company incorporated in India (including its holding or subsidiary, and foreign companies with branch/project offices in India) that, in any financial year, meets any of the following thresholds:
• Net worth: ₹500 crore or more, OR
• Turnover: ₹1,000 crore or more, OR
• Net profit: ₹5 crore or more.
________________________________________
3. CSR Expenditure Requirement
• The company must spend at least 2% of its average net profits made during the three immediately preceding financial years on CSR activities.
• If a company fails to spend the required amount, it must:
o Disclose reasons for not spending in the Board’s Report, and
o Transfer the unspent amount to a specified fund (such as PM National Relief Fund) within prescribed timelines (as per 2021 amendments).
________________________________________
4. Calculation of “Net Profit” for CSR
• As per Section 198 of the Companies Act (not just accounting profit).
• Certain items like profits from overseas branches and capital receipts are excluded.
________________________________________
5. CSR Committee of the Board
Applicability:
• Every qualifying company must constitute a CSR Committee of the Board, consisting of:
o 3 or more directors, at least 1 independent director (if applicable).
o Exceptions for unlisted public companies, private companies, and foreign companies with specific arrangements.
Responsibilities:
• Formulate and recommend a CSR policy to the Board.
• Recommend the amount of expenditure to be incurred on CSR activities.
• Monitor the CSR policy implementation.
________________________________________
6. CSR Policy
1. CSR projects or programs to be undertaken (aligned with Schedule VII activities).
2. Manner of execution.
3. Monitoring mechanism.
4. Details of any surplus arising from CSR activities (cannot be part of business profit).
________________________________________
7. Permissible CSR Activities (Schedule VII of the Companies Act, 2013)
CSR expenditure can only be made on activities listed under Schedule VII, such as:
1. Eradicating hunger, poverty, and malnutrition; promoting health care (including preventive health care) and sanitation; making safe drinking water available.
2. Promoting education, including special education and vocational skills, especially for children, women, elderly, and differently-abled persons.
3. Promoting gender equality, empowering women, setting up homes/hostels for women & orphans; old age homes, day care centers.
4. Ensuring environmental sustainability, ecological balance, protection of flora & fauna, conservation of natural resources.
5. Protection of national heritage, art, and culture.
6. Measures for the benefit of armed forces veterans, war widows, and dependents.
7. Training to promote rural sports, nationally recognized sports, Paralympic sports, and Olympic sports.
8. Contribution to government funds like PM National Relief Fund, PM CARES Fund, and others.
9. Rural development projects.
10. Slum area development.
11. Disaster management, including relief, rehabilitation, and reconstruction.
________________________________________
8. Modes of Implementation
CSR projects can be carried out:
• Directly by the company.
• Through:
o A registered trust.
o A registered society.
o A Section 8 company (non-profit) established by the company itself or others.
o Implementation agencies registered with the Ministry of Corporate Affairs (CSR-1 registration mandatory).
________________________________________
9. Prohibited CSR Expenditure
CSR funds cannot be used for:
• Activities undertaken in the normal course of business (except specific R&D exemptions for COVID-19 related activities up to FY 2022-23).
• Activities outside India (except for training Indian sports personnel abroad).
• Contributions to political parties.
• Benefiting employees exclusively.
• One-off events without long-term benefit.
________________________________________
10. Penalties for Non-Compliance (Post-2021 Amendments)
If a company fails to:
• Spend CSR funds and
• Transfer unspent amounts to the specified funds/projects,
Penalties:
• Company: Twice the unspent amount or ₹1 crore, whichever is less.
• Officers in default: 1/10th of the unspent amount or ₹2 lakh, whichever is less.
________________________________________
11. Reporting Requirements
• Annual CSR report in the Board’s Report.
• Disclosure of CSR policy on the company’s website.
• Details of CSR committee, activities undertaken, and expenditure made.
________________________________________
12. Practical Industry Practices
• Many corporates treat CSR as a brand-building and employee engagement tool (while staying within legal boundaries).
• Companies align CSR activities with Sustainable Development Goals (SDGs) to attract ESG-focused investors.
• Strategic CSR focuses on projects related to core competencies (e.g., IT companies focusing on digital literacy).
________________________________________
13. Key Takeaways
• CSR in India is mandatory for certain companies — not just voluntary philanthropy.
• The 2% spending requirement and strict reporting make it an important compliance function.
• Schedule VII is broad, allowing flexibility in choosing social causes.
• Post-2021, non-compliance attracts monetary penalties and reputational risks.
• Strategic alignment with business vision and ESG goals can make CSR both impactful and beneficial for companies.