What are Corporate Social Responsibility (CSR) Compliances?

Corporate Social Responsibility (CSR) is an essential aspect of corporate governance in India, governed by the Companies Act, 2013. The Act, along with the rules made thereunder, outlines the requirements and compliances that companies must adhere to regarding CSR activities. Below, we’ll discuss the key provisions and compliances related to CSR under the Companies Act, 2013 and its associated rules.

1. Applicability:

Corporate Social Responsibility provisions apply to companies meeting certain financial criteria. These include companies with a net worth of INR 500 crores or more, or a turnover of INR 1,000 crores or more, or a net profit of INR 5 crores or more during any financial year.

2. Corporate Social Responsibility Committee:

Companies meeting the criteria must constitute a CSR Committee consisting of three or more directors, with at least one being an independent director.

3. Corporate Social Responsibility Policy:

The CSR Committee is responsible for formulating and recommending a CSR policy to the board. The policy should outline the CSR activities to be undertaken by the company.

4. Allocation of Funds:

Companies are required to allocate at least 2% of their average net profits from the preceding three financial years towards CSR activities.

5. Eligible CSR Activities:

The Act provides a broad framework for eligible CSR activities, including:

Eradicating hunger, poverty, and malnutrition.

Promoting education and vocational skills.

Ensuring environmental sustainability.

Supporting healthcare initiatives.

Promoting gender equality.

Contribution to the Prime Minister’s National Relief Fund or other similar funds.

Any other activities approved by the CSR Committee.

6. Reporting:

Companies must include a report on CSR activities in their annual reports, outlining the CSR initiatives undertaken during the year. This report should include details of the projects, funds allocated, and the impact of CSR activities.

7. Unspent CSR Funds:

If a company fails to spend the allocated CSR funds during the financial year, it must provide an explanation for the unspent amount in its annual report. The unspent amount must be transferred to a specified fund.

8. Impact Assessment:

Companies are encouraged to conduct impact assessments of their CSR projects to evaluate the effectiveness of their initiatives.

9. Disclosure on Company Website:

Companies are required to disclose their CSR policy and annual CSR report on their websites.

10. Compliance and Penalties:

Non-compliance with CSR provisions can result in penalties for the company, and its officers may face legal action.

11. CSR Register:

Companies must maintain a CSR Register, which contains details of CSR activities.

12. Audit of CSR Activities:

CSR activities are subject to audit by a qualified practicing company secretary or chartered accountant.

It’s important for companies to stay updated with any amendments or changes to CSR rules and regulations, as these can evolve over time. CSR compliance not only fulfills a legal obligation but also contributes to the social and environmental well-being of society, enhancing a company’s reputation and sustainability in the long run.

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