Corporate Social Responsibility (CSR), by definition, is a corporate initiative to evaluate and take responsibility for a company’s effects on environmental and social wellbeing. Though many countries encourage CSR, India stands unique as the first nation to mandate CSR spending, along with a well-defined framework for identifying potential CSR activities.
This system of corporate accountability and social commitment is primarily governed by Clause 135 of the Companies Act, 2013. This Act specifies that CSR obligations apply to companies with an annual turnover of Rs. 1,000 crore or more, a net worth of Rs. 500 crore or more, or a net profit of Rs. 5 crore or more.
The Practice of CSR: Mandates and Guidelines
The aforementioned Act also necessitates companies to establish a CSR committee. This collective is tasked with the crucial job of recommending a CSR Policy to the Board of Directors and monitoring its implementation and efficacy over time. Furthermore, underlining the seriousness of this commitment, the Act urges companies to contribute 2% of their average net profit from the preceding three years towards CSR activities.
Schedule VII of the Companies Act gives further direction by specifying the types of activities that may be included in a company’s CSR initiatives. These include poverty eradication, promotion of education and gender equality, combating significant diseases, ensuring environmental sustainability, and contributing to various governmental and societal development funds.
Notable Recommendations on CSR
Given the significance of these efforts, continuous evaluations and recommendations are sought to optimize CSR’s effectiveness. A committee chaired by Injeti Srinivas, Secretary of the Corporate Affairs Ministry, recently put forth several such recommendations to the Minister of Corporate Affairs (MCA).
| Recommendation | Description |
|---|---|
| Tax Deduction for CSR Expenditure | The committee suggests that expenses towards CSR should be eligible for deduction in the computation of taxable income. |
| CSR Obligation Timeline for New Companies | For newly incorporated companies, it is recommended that the CSR obligation under Section 135 of the Companies Act should only apply after they have been established for three years. |
| Carry Forward of Unspent CSR Funds | The committee has recommended a provision to permit companies to carry forward unspent CSR balance for three to five years. |
| Establishment of Designated Fund for Unspent CSR Money | A suggestion has been made to discontinue central government funds as CSR spend and instead, create a special designated fund for the transfer of unspent CSR money beyond three to five years. |
Additional Recommendations and Amendments
Continuing with the proposal, it has been suggested that the violation of CSR compliance be transformed into a civil offence under the penalty regime, moving away from the recent policy that proposed a three-year jail term for violating CSR norms. It was also suggested to exempt companies having CSR-prescribed amount below Rs. 50 lakh from constituting a CSR Committee.
Apart from these regulatory changes, Injeti Srinivas’ committee has advocated for impact assessment studies for CSR obligations exceeding Rs. 5 crore and the alignment of Schedule VII of the Companies Act with the United Nations Sustainable Development Goals. They also propose the development of a CSR exchange portal to connect contributors, beneficiaries, and agencies, thus facilitating CSR in social benefit bonds and promoting social impact companies.
In all, CSR in India is a dynamic and crucial aspect of corporate operations, continuously evolving with inputs for greater efficacy and broader social impact.