Presentation on Corporate SOCIAL RESPONSIBILITY

1. Why a new Law was needed?
1
By

2. 2
“CORPORATE SOCIAL RESPONSIBILITY”-

3. Why a new Law was needed?
Scenario in Olden Days
3
Digging of Lakes/ Ponds
Construction of huge
Granaries
Plantation of Trees
Women Empowerment
Establishment of Universities
etc

4. Why a new Law was needed?
??????????????
4

5. Why a new Law was needed?
Occupying the lakes
Polluting the Natural resources
Cutting the trees
Using of Enormous Plastic
Illogical disposal of Waste
Resource Mining
Scenario in Modern Days
5

6. Why a new Law was needed?
6

7. Why a new Law was needed?
What is CSR
7
A Business Process that works for a social
cause.
Business gives a part of what it ges to the
community for its development.
Forwarded action which flows Company’s
vision and mission as a part of everyday action

8. The Pyramid of CSR
8
Philanthropic
(Be a good corporate
citizen)
Ethical
(Be ethical)
Legal
(Obey the law)
Economic
(Be profitable)
Contribute resources to the
community, improve
quality of life
Obligation to do what is
right, just and fair
Law is society’s codification of
right and wrong
The foundation upon
which all others rest

9. First Phase
(1850-1914)
Driven by noble deeds
of philanthropists and charity
Second Phase
(1914-1960)
Largely influenced by Mahatma
Gandhi’s theory of trusteeship.
Industrialists pressurized to show their
dedication towards the benefit of the
society
Third Phase
(1960 – 1980)
CSR influenced by the emergence of
Public sector undertakings to ensure
proper distribution of wealth
Fourth Phase
(1980 until the present)
Indian companies integrated CSR into
a sustainable business strategy. What
started as charity is now understood
and accepted as responsibility.
Four Phases of
CSR Development
in India
9
PHASES OF CSR

10. Current state of CSR in India
Priority widened from
1 P to 3 Ps by inclusion
of People and Planet
with Profit.
Short-term, charity based
welfare interventions are
being replaced by long-
term, empowerment –
based CSR.
CSR is being considered as
an imperative for carrying
on business in the society
rather than as a charity.
The new Companies Act,
2013 mandates the
corporates to spend 2%
of their average net
profits of the last three
financial years
towards CSR..
10
Central Public Sector
Enterprises to allocate 2-3%
of the PAT for the inclusive
development of a backward
district CSR &sustainability
guidelines by Department
of Public Enterprises 2013)

11. 11

12. Why a new Law was needed?
Major Object of Corporate Entity
12
To develop products to serve needs of
consumers, create more and more customers
for that product….
Earn profits for Shareholders and Promoters

13. Why a new Law was needed?
Why Companies Need CSR
13
To create a trust among the investors
For becoming preferred choice of their
customers
For enhancing brand value and reputation
Long term sustainability for organization
and society

14. Why a new Law was needed?
There are many business reasons for companies
to be socially responsible.
Reasons for CSR
14
Internal Philanthropic External
Employees Education Local Communities
Customers Health Publicity
Shareholders Social Development Pollution control
Tax benefits Charity Environment
Brand enhancement Donation National Interest

15. Why a new Law was needed?
Strengthen
ed Board
position
Enhanced
corporate
image
Increased
ability to
attract,
motivate
and retain
employees
Increased
sales and
market
share
Increased
appeal to
investors
and
financial
analysts
Benefits of CSR
15

16. Why a new Law was needed?
CSR- ISSUES
16
Business Ethics
Community Investment
Environment
Governance
Human rights etc

17. Why a new Law was needed?
Changing social
expectations
Increasing affluence
Globalization and
free flow of
Information
CSR Importance and its Relevance Today
17
CSR as a strategy is becoming increasingly important for businesses
today because of three identifiable trends

18. CSR Importance and its Relevance Today
In PM’s Words………..
18

19. Why a new Law was needed?
vision
Goals
Mission
CSR Vision Vs Company’s Strategy
19

20. CSR – Companies Act, 2013
Section 135
Rules
Schedule VII
20

21. 21
Every Company
With
Net Worth of
Rs. 500 Crores
or more
Turnover of Rs.
1000 Crores or
more
Net Profit of
Rs. 5 Crores or
more
During any Financial Year
Shall constitute a Corporate Social Responsibility Committee of the
Board consisting of three or more directors, out of which at least one
director shall be an independent director.
Applicability &
Constitution of a CSR Committee(Rule 3)
* To be inducted by 31st March, 2015

22. CSR Committee
(Rule 5)
The companies mentioned in the rule 3 shall
constitute CSR Committee as under.-
22
an unlisted public company- not required to appoint an
independent director
a private company - having only two directors on its
Board shall constitute its CSR Committee with two such
directors:
foreign company : comprise of at least two persons of
which one person shall be as specified under clause (d) of
sub-section (1) of section 1 80 of the Act and another
person shall be nominated by the foreign company.

23. CSR Committee - Mandate
23
Deliberate & formulate CSR Policy
Recommend for approval of the Board
Deliberate & Finalise CSR Projects/ Initiatives
&Allocation of Funds
Recommend for approval of the Board
Finally monitors the Projects/ Initiatives and
funds utilized for the said purpose

24. BOARD’S RESPONSIBILITY
The Board of every company after taking into account the recommendations
made by CSR Committee:
• Approve the CSR Policy
• Disclose contents of such Policy in its report
• Place it on the company’s website, and
• Ensure that the activities as are included in CSR Policy of the company
are undertaken by the company, and
• Ensure that the company spends, in every financial year, at least TWO
PER CENT OF THE AVERAGE NET PROFITS
• If the Company fails to spend such amount, the Board shall, in its report
specify the reasons for not spending the amount
• “Average net profit” shall be calculated in accordance with the
provisions of section 198 of the 2013 Act
24

25. Eradicating hunger and poverty
rural development projects
contributions or funds provided to technology incubators
Contribution to the Prime Minister's National Relief Fund
environmental sustainability
Reducing child mortality and improving maternal health
Promotion of education, gender equality and empowering women
25
CSR Activities
The 2013 Act provides that the company shall give
preference to the local area and areas around it where it
operates

26. CSR Activities- Modes
26
CSR
Activities
Company
Trust
Other Entity
operating within India ,
established track record of at least three years
in carrying out activities in related areas

27. Why a new Law was needed?
contributing company would need to specify the projects/ programs to be
undertaken by such an organization, for utilizing funds provided by it;
contributing company shall establish a monitoring mechanism to ensure
that the allocation is spent for the intended purpose only
Companies may collaborate or pool resources with other companies to
undertake CSR activities.
Only activities which are not exclusively for the benefit of employees of
the company or their family members shall be considered as CSR activity
Implementation Of CSR Activities
Through outside Agency
Rule 4(2)
27

28. Net Profit
Rule 2(f)
Rule: 2(f) "Net profit" means the net profit of a company as Per its
financial statement prepared in accordance with the applicable
Provisions of the Act, but shall not include the following, namely
:-
• (i) any profit arising from any overseas branch or branches of the
company' whether operated as a separate company or otherwise;
and
• (ii) any dividend received from other companies in India, which
are covered under and complying ]with the Provisions of section
135 of the Act:
Provided further that in case of a foreign company covered under
these rules, net profit means the net profit of such company as per
profit and loss account prepared in terms of clause (a) of sub
section (l) of section 381 read with section 198 of the Act.
28

29. • Add Share Capital
• Add Reserves created out of Profit and Securities
Premium Account
• Subtract Accumulated Losses
• Subtract Deferred Expenditure
• Subtract Miscellaneous Expenditure not written off
• Reserves created out of Revaluation of Assets, write-
back of depreciation and amalgamation should not be
included
Note: All figures to be as per the Audited Balance Sheet
29
Calculation of Net Profit

30. Example:
A company was incorporated fifty years ago with a
paid-up capital of Rs. Two Lakhs. The company
bought 50 acres of urban land at Rs. 3000- per acre.
The company did nothing else in the past fifty years.
The land is valued now at about Rs. 20 Crores per
acre. The company has done revaluation of the land
in its balance sheet. For CSR purposes, the net
worth of the company is about Rs. 1.5 Lakhs and
not Rs. 1000 Crores.
30
Calculation of Net Profit

31. CSR- Policy
Rule 6
• (a) a list of CSR projects or programs which a
company plans to undertake falling within the
purview of the Schedule VII of the Act,; and
• (b) monitoring process of such projects or programs:
• Provided that the CSR activities does not include the
activities undertaken in course of normal course of
business of a company.
• Board of Directors shall ensure that activities
included by a company in its Corporate Social
Responsibility Policy are related to the activities
included in Schedule VII of the Act
31

32. CSR- Reporting
Rule 8
The Board's Report of a
company shall include an
annual report on CSR
• Indian Company
The balance sheet filed u/s
381(1)(b) shall contain an
annexure regarding report on
CSR.
• Foreign Company
32

33. • Periodic reporting on the CSR activities, execution modalities,
implementation schedules etc., to the CSR Committee shall be
in the following format which may be amended by the CSR
Committee from time to time.
33
CSR- Reporting
Sl
No
Company
Initiative
Schedule
VII
Activity
Execution
details
Budget
(Rs)
Amount
Spent
(Rs)
Remarks

34. How Corporates should work
34

35. Why a new Law was needed?
35
LIKE………..

36. Why a new Law was needed?
36
www.ahaladaraoassociates.com
Business operations Vs CSR

37. Why a new Law was needed?
Care for all
stakeholder
Ethical
functioning
Looking
after workers'
rights and
welfare
Respect for
human rights
Concern for
environment
Activities for
social and
inclusive
development
CSR Policy - Core Elements
37

38. Why a new Law was needed?
Identification of thrust areas
Identification of manner and nature of projects / activities
Defining measurable targets & time frame for the activities
Performance management- quality and standard of the work
to be maintained
Organisational mechanism & assigning responsibilities for
due performance of CSR projects
Manner of delivering CSR- foundation / partnership with
non government organisation/ participation of employees
How to Implement CSR Policy
38

39. Why a new Law was needed?
Implementation framework consists of
Building Roadmap & Rollout
39
When What How
Plan Conduct Csr assessment
& develop strategy
From CSR team
Do Develop & implement
csr commitments
Examine CSR
Committee
Check Assure and report on
progress
Measure and assure
performance
improve Evaluate and improve Evaluate Performance

40. Why a new Law was needed?
Business of business is business
To be successful should have pre-defined goals and
objectives towards all stakeholders
Through CSR companies integrate social and
environmental concerns in their business operations
Continuous commitment
CSR –
Integral part of Governance of Corporates
40

41. CSR – A tool of Asset Creating ????
41

42. Intangible Assets
42

43. 43
non-monetary asset, without physical
substance
Intangible Assets & Value
Creation

44. 44
Classification of
Intangible assets
Goodwill
Brands/trademarks
Computer
software
Mastheads and
publishing titles
Mining rights
Copyrights, and
patents and other
intellectual property
Rights, services, and
operating rights
Recipes,
formulae,
models, designs
and prototypes
Others (Specify
nature)

45. Kinds of Intangible Asset Legal
Trademark Copyright
Patent
Brand
45
Goodwill
Customer
list
Customer
loyalty
Inhouse
intellect
LEGAL BUSINESS

46. Is it creating brand image???
......
46

47. CSR – Tax Implication
47

48. Tax Exemption- Section 80G
 This section does not restrict the deduction to individuals, companies or any specific
category of taxpayer. Allowable to all kind of Assessee.
 Donations made to foreign trusts do not quality for deduction under this section.
 Deduction cannot be claimed for donations made to political parties for any reason,
including paying for brochures, souvenirs or pamphlets brought out by such parties.
 Only donation made to prescribed funds and institutions qualify for deduction.
 Maximum allowable deduction:- If aggregate of the sums donated exceed 10% of the
adjusted gross total income, the amount in excess of 10% ceases to be entitled for tax
benefit.
 Only donations in cash/ cheque are eligible for the tax deduction.
 NRIs are also entitled to claim tax benefits against donations, subject to the donations being
made to eligible institutions and funds.
48

49. Tax Exemption- Section 35 AC
 To promote reinvestment of business profits in areas where massive capital input is
required for socio-economic development, a tax incentive has been provided under
Section 35AC of the Income Tax Act, 1961.
 The section provides that where an assessee incurs any expenditure by way of payments of
any sum to:
i) a public sector company or;
ii) a local authority or;
iii) to an association/ institution approved by the National Committee
for carrying out any eligible project or scheme for promoting the social and economic
welfare or upliftment of the public as the Central Government may specify, then the
amount so paid shall be allowed as deduction from the business income of the assessee/
contributor of such amount.
49

50. Why a new Law was needed?
Deduction – Section 37
50
Section 37 of IT Act, 1961 : Allowed if and only if spent for the sake of
business
Deductions are not allowed if it is application of Money.
“As the application of income is not allowed as deduction for the purposes
of computing taxable income of a company, amount spent on CSR cannot
be allowed as deduction for computing taxable income of the company,”

51. What is the Impact of CSR contribution –
from “ Tax deductibility point of view”
51

52. 52
Companies Act,
2013
Income Tax
Act, 1961
CSR ?????

53. Budget 2014-15 has clarified that CSR spend
made by companies in line with new Company
Law obligations will not be entitled for income
tax deduction (under Section 37).
Section 135 of the Companies Act excludes
activities undertaken in pursuance of the
normal course of business of a company and,
therefore, render these not deductible under
Section 37 (1),
53
Clarification

54. Why a new Law was needed?
• Narendra Modi-led government plans to penalise CSR defaulters
under Companies Act 2013
• Under the current law, there's no mandatory obligation on the
company, but a responsibility is cast upon the board members.
• The new law, which came into effect on April 1, 2014, says if a
company isn't able to give a satisfactory explanation about not
spending on CSR activities, the corporate affairs ministry, at most,
can question the roles and responsibility of its directors.
• The quantum of penalty in case of non-compliance hasn't been
worked out
Government’s stance- CSR Activities
54

55. Why a new Law was needed?
Positive Outcomes
When Businesses Adopt Social Responsibility
55
Benefits to Community and
General Public
Environmental Benefits
• Charitable contributions
• Employee volunteer programs
• Corporate involvement in
community education,
employment and homelessness
programs
• Product safety and quality
• Greater material recyclability
• Better product durability and
functionality
• Greater use of renewable resources
• Integration of environmental
management tools into business
plans, including life-cycle assessment
and costing, environmental
management standards, and eco-
labeling

56. Why a new Law was needed?
• Tata Consultancy Services :- The Adult Literacy Program.
• Larsen & Toubro (L & T) Limited:- Construction Vocational
Training
• CISCO System Inc.:- “triple bottom line”
• ITC:- helping small farmers with degraded land pieces
• Maruti:- Industrial Training Institutes (ITI)
CSR- Sustainability Initiatives
In India
56

57. Why a new Law was needed?
Conclusion
57
Corporates shall perform its CSR activities
purely as charitable purpose. If incidentally
any Intangible assets viz; Goodwill , Patents,
Brand etc are created then after due
recognition and valuation of such Intangible
assets it may be disclosed but Corporates
shall never aim for creation of wealth
through CSR . It shall always be incidental to
its main activity and not be its primary goal.

58. Why a new Law was needed?
58
Rather than paying donations, using core strengths to address social
issues is the best form of sustainable corporate social responsibility.