The Companies Act 2013 mandates corporate social responsibility (CSR) for eligible companies, outlining that CSR involves ethical treatment of stakeholders and creating societal impacts through various initiatives. Companies meeting certain financial criteria are required to create a CSR policy, form a CSR committee, and allocate at least 2% of their average net profits towards CSR activities, which should focus on local community needs. Additionally, specific guidelines and exclusions are detailed regarding qualifying CSR activities and expenditure reporting requirements to ensure transparency and accountability.

1. Lesson 7 :Corporate Social Responsibility
Companies Act, 2013, mandates Companies to undertake Corporate Social Responsibility, as one
of the Board Agenda.
Definition:
Michel Hopkins “Corporate Social Responsibility is concerned with treating the stakeholders of a
company or institution ethically or in a responsible manner.
- CSR is the way companies create positive impact on society through economic, environmental
and social actions.
- CSR reduces investment risks and maximise profits by taking all the key stakeholders into
confidence.
- CSR increase the reputation of the company in the eyes of society.
- CSR creates a long term consumer and employee value by creating “green strategy”
Applicability
CSR provision is applicable to companies which fulfills during the immediately preceding financial
year including its holding or subsidiary, and a foreign company having its branch office or project
office in India
• Companies having net worth of rupees >500 CR
• Companies having turnover of rupees >1000 CR
• Companies having a net profit of rupees >5 Cr
Cessation
A company which does not satisfy specified criteria for a consecutive period of three financial
years is not required to comply with the CSR obligations implying that not satisfying any of the
specified criteria in a subsequent financial year would still need to undertake CSR unless it ceases
to satisfy the specified criteria for a continuous period of three years.
CSR Committee
Section 135 of the 2013 Companies Act
- at least three directors, including at least one independent director.
- Where a company is not required to appoint an independent director under sub-section (4) of
section 149, it shall have in its Corporate Social Responsibility Committee two or more
directors.
• a private company has only two directors on the Board, CSR Committee can be constituted
• The CSR Committee of a foreign company shall comprise of at least two persons wherein
one or more persons should be resident in India and the other person nominated by the
foreign company.
Functions of CSR Committee
• To formulate and recommend to the Board, a CSR Policy

2. • To recommend the amount of the expenditure to be incurred on the activities undertaken
• To institute a transparent monitoring mechanism for implementation of the CSR projects
• To monitor the CSR policy of the company time to time.
CSR Policy
• CSR Policy relates to the activities to be undertaken.
• The expenditure thereon.
• Monitoring process of such projects or program.
• The Board after taking into account the recommendations made by the Corporate Social
Responsibility Committee, approve the Corporate Social Responsibility Policy for the company
and disclose contents of such Policy in its report and also place it on the company's website.
• The Board of every company ensures that the activities as are included in Corporate Social
Responsibility Policy of the company are undertaken by the company.
List of CSR Activities :
In determining CSR activities to be undertaken, preference would need to be given to local areas
and the areas around where the company operates.
Schedule VII
(i) eradicating hunger, poverty and malnutrition, promoting health care including preventive
health care and sanitation including contribution to the Swach Bharat Kosh set-up by the Central
Government for the promotion of sanitation and making available safe drinking water.
(ii) promoting education, including special education and employment enhancing vocation skills
especially among children, women, elderly and the differently abled and livelihood enhancement
projects.
(iii) 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;
(iv) ensuring environmental sustainability, ecological balance, protection of flora and fauna,
animal welfare, agro forestry, conservation of natural resources and maintaining quality of soil, air
and water including contribution to the Clean Ganga Fund set-up by the Central Government for
rejuvenation of river Ganga;
(v) 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;
(vi) measures for the benefit of armed forces veteran, war widows and their dependents;
Not included
• Marathons/ awards/ charitable contribution/ advertisement/sponsorships of TV
programmes etc. do not be qualified as part of CSR expenditure.
• Expenses incurred by companies for the fulfillment of any Act/ Statute of regulations (such
as Labour Laws, Land Acquisition Act etc.) are not count as CSR expenditure under the
Companies Act.
• Surplus arising out of the CSR projects or programs or activities shall not form part of
business profit of a company.

3. CSR Expenditure
• The Board ensure that the company spends, in every financial year, at least 2% of the
average net profits of the company made during the three immediately preceding financial
years, on CSR Policy.
• The reasons for not spending the amount to be mentioned.
• Preference to be given to the local area and areas around it where the companies operates
• Expenditure on activities that are carried out in India will qualify as CSR expenditure.
• Expenditure incurred by foreign holding company for CSR activities in India will qualify as
CSR spend of the Indian subsidiary if, the CSR expenditures are routed through Indian
subsidiaries and if the Indian subsidiary is required to do so as per section 135 of the Act.
Computation of net profit
The net worth, turnover and net profits are to be computed in terms of Section 198 of the 2013
Act as per the profit and loss statement prepared by the company in terms of Section 381 (1) (a)
and Section 198 of the 2013 Act.
• Indian company: The CSR Rules clarified dividend income received from another Indian
company or profits made by the company from its overseas branches have been excluded.
Moreover, the 2% CSR is computed as 2% of the average net profits made by the company
during the preceding three financial years.
• Foreign company: The CSR Rules prescribed a foreign company that has its branch or a
project office in India, CSR provision will be applicable to such offices. CSR Rules further
prescribe that the balance sheet and profit and loss account of a foreign company will be
prepared in accordance with Section 381(1)(a) and net profit to be computed as per Section
198 of the Companies Act. It is not clear as to how the computation of net worth or turnover
would be arrived at in case of a branch or project office of a foreign company
Profits from any overseas branch of the company, including those branches that are operated as a
separate company would not be included in the computation of net profits of a company.
Besides, dividends received from other companies in India which need to comply with the CSR
obligations would not be included in the computation of net profits of a company.
Disclosure Requirements
It is mandatory for companies to disclose in Board’s Report, an annual report on CSR in the format
prescribed containing following particulars
• A brief outline of the company's CSR policy, including overview of projects or programs
proposed to be undertaken and a reference to the web-link to the CSR policy and projects or
programs.
• The Composition of the CSR Committee.
• Average net proflt of the company for last three financial years
• Prescribed CSR Expenditure

4. • Details of CSR spent during the financial year.
• In case the company has failed to spend the two per cent of the average net profit of the last
three financial years or any part thereof, the company shall provide the reasons for not
spending the amount in its Board report.
• A responsibility statement of the CSR Committee that the implementation and monitoring of
CSR Policy, is in compliance with CSR objectives and Policy of the company.
• CSR policy and the report containing details of such activities have to be made available on
the company’s website
• The reasons for not spending the minimum amount to be specified in the Board Report.
How can companies with small CSR funds take up CSR activities in a project/
programme mode?
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).