Corporate Social Responsibility (CSR) is governed by Section 135 of the Companies Act, 2013 in India. This section outlines the criteria for companies that are obligated to engage in CSR activities and the compliance requirements they must fulfill.
A company is required to comply with CSR regulations if it meets any of the following criteria during the previous financial year:
- Net Worth: ₹500 crore or more.
- Turnover: ₹1,000 crore or more.
- Net Profit: ₹5 crore or more.
If a company meets any one of these thresholds, it becomes obligated to adhere to CSR provisions.
Compliance Requirements for Companies Subject to CSR
If a company falls under the applicability of CSR, it must fulfill the following compliance requirements:
- Establishment of a CSR Committee
- Composition: The company must form a CSR Committee consisting of at least three directors. At least one of these directors must be an independent director.
- Responsibilities: The committee is responsible for:
- Formulating and recommending a CSR policy.
- Overseeing the implementation of the CSR activities.
- Monitoring and ensuring compliance with CSR regulations.
- CSR Policy
- Drafting the Policy: The CSR Committee must create a CSR policy that outlines the company’s approach to CSR, including focus areas and specific initiatives.
- Board Approval: The CSR policy needs to be approved by the company’s Board of Directors.
- Annual CSR Expenditure
- Minimum Spending Requirement: Companies meeting the thresholds are required to spend at least 2% of their average net profits of the last three financial years on CSR activities.
- Carry Forward of Unspent Amount: If a company fails to spend the required amount, it must explain the reasons in the Board’s report. The unspent amount can be carried forward to the next financial year.
- Disclosure in Annual Report
- Annual Reporting: Companies must disclose their CSR activities in their annual report. This includes:
- The total amount spent on CSR initiatives.
- Details of the projects undertaken.
- The impact of these projects.
- Impact Assessment (if applicable)
- For companies with a CSR spend of ₹10 crore or more in a financial year, an impact assessment of their CSR projects is mandatory. This should be done by an independent agency and reported to the Board.
- Compliance with CSR Rules
Companies must adhere to the rules laid out under the Companies (Corporate Social Responsibility Policy) Rules, 2014, which provide further guidance on CSR activities, reporting, and compliance.