Corporate Social Responsibility Under the Companies Act 2013

Applicability of Section 135 with Rules and Schedule VII

• The Ministry of Corporate Affairs has notified Section 135-

Corporate Social Responsibility and Schedule VII of the Companies Act, 2013 and the provisions of the same shall be applicable from 1st April, 2014.

• The Rules under Section 135 of the Companies Act, 2013 shall be called as Companies (Corporate Social Responsibility Policy) Rules, 2014.

• The Rules shall come into force from 1st April, 2014.

CSR in Companies Act, 2013

Applicability

• Every company having Net Worth of Rs. 500 crores or more, or

Turnover of Rs. 1000 crores or more or

Net profit of Rs. 5 crores or more ;

any of the three preceding financial years.

How to Calculate Net Worth, Turnover and Net Profit

NET WORTH:- means the aggregate value of the paid-up share capital and all reserves created out of the profits and securities premium account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation;

TURNOVER:- means the aggregate value of the realization of amount made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year;

NET PROFIT:- means the net profit of a company as its financial statement prepared in accordance with the applicable provisions of the Act but shall not include the following:• Profit arising from any overseas branch or branches of the

company, whether operated as a separate company or otherwise;

• Any dividend received from other companies in India, which are covered under and complying with the provisions of Section 135.

CSR COMMITTEE- CONSTITUTION

• Private Company having only two directors on its Board shall constitute its CSR Committee with two such directors

• The CSR committee shall formulate and recommend to the Board, a CSR Policy.

• The CSR Committee shall institute a transparent monitoring mechanism for implementation of the CSR projects or programs or activities undertaken by the company.

• The Board's report is required to disclose the composition of the CSR Committee.

RESPONSIBILITY OF CSR COMMITTEE

• To formulate and recommend to the Board CSR policy.

• To ensure 2% of average net profits of 3 past years is spent.

• To explain the reasons for non-spending by Board.

• To monitor CSR policy.

The Board of every company shall ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.

The section postulates that “net profit” shall be calculated in accordance with the provisions of section 198.

Company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for CSR activities.

Where the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount.

CSR SPEND IN FINANCIAL YEAR

CSR EXPENDITURE

The CSR projects or programs or activities undertaken in India only shall amount to CSR expenditure.

Activities undertaken in normal course of business of company shall not be included in CSR spend (eg. The business of co. is to run educational institution)

CSR POLICY

'CSR Policy" relates to the activities to be undertaken by the company as specified in Schedule VII to the Act and the expenditure thereon, excluding activities undertaken in pursuance of normal course of business of a company.

The CSR Policy of the company shall, inter-alia, include the following, namely:-

• a list of CSR projects or programs which a company plans to undertake falling within the purview of the Schedule VII of the Act, specifying modalities of execution of such project or programs and implementation schedules for the same;

• monitoring process of such projects or programs; and

• The CSR Committee shall recommend the amount of expenditure to be incurred on the activities referred in CSR Policy

SCHEDULE VII

Activities which may be included by companies in their Corporate Social Responsibility Policies.

• Eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation and including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water;

• Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects;

• Promoting gender equality, empowering women, setting up homes and hostels for women and orphans, setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups; CONTD.

• Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water including contribution to the Clean Ganga Fund setup by the Central Government for rejuvenation of river Ganga;

• Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional arts and handicrafts;

• Measures for the benefit of armed forces veterans, war widows and their dependents;

• Training to promote rural sports, nationally recognized sports, paralymic sports and Olympic sports;

CONTD.

• Contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women;

• Contributions or funds provided to technology incubators located within academic institutions, which are approved by the Central Government;

• Rural development projects;

• Slum Area Development;

CSR REPORTING

Board’s Report of a company pertaining to a Financial year commencing on or after the 1st April, 2014 shall include an annual report on CSR containing particulars specified in Annexure.

The Board of Directors of the company shall disclose contents of CSR policy in its report and the same shall be displayed on the company’s website, if any as per the particulars specified in the Annexure.

CONTD.

REPORTING ON CSR INITIATIVES

1. A brief outline of the company’s CSR policy including the overview of projects or programs proposed to be undertaken and a reference to the web-link of the CSR Policy and projects or programs.

2. The composition of CSR Committee.

3. Average Net Profit of the company for last 3 financial years.

4. Prescribed CSR Expenditure (2% of the amount as in item 3 above).

CONTD.

S.No.

CSR project / activity identified

Sector in which the Project is covered

Projects /Programmes 1.Local area/others- 2.Specify the State and district where projects or programs were undertaken

Amount outlay (budget) project/ programs wise

Amount spent on the project /programs Subheads: 1.Direct expenditure on project, 2.0verheads

Cumul- ative spend upto to the reporting period.

Amount spent: Direct /through implem- enting agency*

Manner in which the amount spent during the financial year is detailed below

PENALTIES

The Board of Directors of the company shall disclose contents of CSR policy in its report under section 134 of Companies Act, 2013, If a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.

Particulars

Total Revenue of the company Less: if following are including in total revenue1. Profit from premium of shares/Debentures2. Profit from sales of Forfeited shares3. Profit in terms of capital natures (in terms of undertaking of company or any part of

thereof)4. Profit from the sale of immovable property/fixed assets/any capital nature5. Any surplus change in carrying amount of an assets or liability recognized in equity

reserves.Total revenue after extraordinary income Less: Total Expenditure including Operating Expenses(i.e. Raw material, wages, stock adjustments, selling and admin expenses)Operating ProfitLess: InterestPBDTLess: Depreciation Profit before TaxAdd: if following are including in total expenditure1. Income tax and any other tax 2. Compensation, damages or other payments made voluntarily3. Loss of capital natures including loss on sale of undertaking of company or any part

of thereof4. Any transfer to assets/liabilities revaluation reservesNet Profit according to Section 198

CALCULATION OF NET PROFIT ACCORDING TO SECTION 198 FOR

THE PURPOSE OF SECTION 135 OF NEW COMPANIES ACT, 2013

Thank You..