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TMI BlogFrequently Asked Questions (FAQs) with regard to Corporate Social Responsibility under section 135 of the Companies Act, 2013X X X X Extracts X X X X X X X X Extracts X X X X ..... d 18.06.2014 issued by the Ministry of Corporate Affairs, provide the broad contour within which eligible Companies are required to formulate their CSR policies including activities to be undertaken and implement the same in the right earnest. While complying with the Corporate Social Responsibility (CSR) provisions of the Act, Board of the eligible companies are empowered to appraise and approve their CSR policy including CSR projects or programmes or activities to be undertaken. In this connection, Ministry has been receiving several queries and references seeking further clarifications on various issues relating to CSR provision of the Act. 2. In continuation to this Ministry's General Circular dated 18th June, 2014 and 17th Septemb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T AFTER TAX? Computation of net profit for section 135 is as per section 198 of the Companies Act, 2013 which is primarily PROFIT BEFORE TAX (PBT). 5. CAN THE CSR EXPENDITURE BE SPENT ON THE ACTIVITIES BEYOND SCHEDULE VII? General Circular No. 21/2014 dated June 18, 2014 of MCA has clarified that the statutory provision and provisions of CSR Rules, 2014, is to ensure that activities undertaken in pursuance of the CSR policy must be relatable to Schedule VII of the Companies Act, 2013. The entries in the said Schedule VII must be interpreted liberally so as to capture the essence of the subjects enumerated in the said Schedule. The items enlisted in the Schedule VII of the Act, are broad-based and are intended to cover a wide range of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rammes or activities undertaken outside India. 8. WHETHER A HOLDING OR SUBSIDIARY OF A COMPANY WHICH FULFILS THE CRITERIA UNDER SECTION 135(1) HAS TO COMPLY WITH SECTION 135, EVEN IF THE HOLDING AND SUBSIDIARY ITSELF DOES NOT FULFILL THE CRITERIA. Holding or subsidiary of a company does not have to comply with section 135(1) unless the holding or subsidiary itself fulfills the criteria. 9. Whether provisions of CSR are applicable on Section 8 Company, if it fulfills the criteria of section 135(1) of the Act. Section 135 of the Act reads "Every company……", i.e. no specific exemption is given to section 8 companies with regard to applicability of section 135, hence section 8 companies are required to follow CSR provisions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 81 shall contain an Annexure regarding report on CSR. 14. WHETHER CONTRIBUTION TOWARDS DISASTER RELIEF QUALIFIES AS CSR OR NOT? (May please refer point no. 7 to the annexure to General Circular dated 18.06.2014 issued by Ministry of Corporate Affairs). 15. WHETHER CONTRIBUTION IN KIND CAN BE MONETIZED TO BE SHOWN AS CSR EXPENDITURE? Section 135 prescribes "….. shall ensure that company spends…..". The company has to spend the amount. 16. IF A COMPANY SPENDS IN EXCESS OF 2% OF ITS AVERAGE NET PROFITS OF THREE PRECEDING YEARS ON CSR IN A PARTICULAR YEAR, CAN THE EXCESS AMOUNT SPENT BE CARRIED FORWARD TO THE NEXT YEAR AND BE OFFSET AGAINST THE REQUIRED 2% CSR EXPENDITURE OF THE NEXT YEAR? Any excess amount spent (i.e., m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to play in engaging external experts for monitoring the quality and efficacy of CSR expenditure of companies. Boards / CSR Committees are fully competent to engage third parties to have an impact assessment of its CSR programme to validate compliance of the CSR provisions of the law. 20. CAN CSR FUNDS BE UTILIZED TO FUND GOVERNMENT SCHEME? The objective of this provision is indeed to involve the corporates 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 resource gaps in Government Scheme. Use of Corporate innovations and management skills in the delivery of 'public goods' is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be managed with even small fund. Further, there is a provision in the CSR policy Rules, 2014 that such companies can combine their CSR programs with other similar companies by way of pooling their CSR resources. (refer rule 4 in Companies (CSR Policy) Rules, 2014. 23. WHETHER INVOLVEMENT OF EMPLOYEES OF THE COMPANY IN CSR PROJECT/ PROGRAMME OF A COMPANY CAN BE MONETIZED AND ACCOUNTED FOR UNDER THE HEAD OF 'CSR EXPENDITURE'? Contribution and involvement of employees in CSR activities of the company will no doubt generate interest/ pride in CSR work and promote transformation from Corporate Social Responsibility (CSR) as an obligation to Socially Responsible Corporate (SRC) in all aspects of their functioning. Companies therefore, should ..... X X X X Extracts X X X X X X X X Extracts X X X X
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