CSR Section 135 of Companies Act ,2013

Section 135-
Corporate Social Responsibility

• What is CSR
• Section 135 to be complied
• CSR Applicability
• CSR committee
• Amendments in CSR
• SCHEDULE VII
• Boards responsibility
• Penalty for non compliance
• Reporting requirement under CARO 2020
• FAQ’s on CSR COVID-19
Contents

What is CSR?
 Corporate Social Responsibility is the continuing
commitment by business to behave ethically and
contribute to economic development while improving the
quality of life of the workforce and their families as well
as of the local community and society at large.
 Corporate social responsibility (CSR) is a self-regulating
business model that helps a company be socially
accountable—to itself, its stakeholders, and the public.

There are 3 steps by following
which section 135 can be
complied with:-

STEP 1
• Check Whether the company attract the provision of Section 135?
YES NO
STOP

STEP 2
• Constitute CSR Committee
STEP 3
• Formulate and recommend CSR Policy to the board
STEP 4
• Monitor the policy time to time and ensure implementation.

Section 135 :Applicability
(Immediately preceding FY)
CRITERIA YES NO
NET WORTH 500 C or more  ×
TURNOVER 1000C or more  ×
NET PROFIT 5C or more  ×

Formation of CSR Committee:-
• Every company to which CSR criteria is applicable shall constitute a
Corporate Social Responsibility of the Board (i.e. CSR Committee).
• Minimum 3 or more directors must form CSR Committee.
• Among those 3 directors, at least 1 director must be an independent
director.
• An unlisted public company or a private company shall have its CSR
Committee without any independent director if an independent director is
not required.
• In case of a foreign company, the CSR Committee shall comprise of at least
2 persons of which one person shall be a person resident in India
authorized to accept on behalf of the foreign company – the services of
notices and other documents. Also, the other person shall be nominated by
the foreign company.

Amount to be Spent on CSR Activities:-
As per Companies Act, 2013 board of every Company as referred
in Section 135(1) shall ensure company spends at least 2% of average
net profits of the company made during the 3 immediately preceding
Financial Years.
Average net profits
(Refer section 198 for calculation of Net profit)

Amendments’ in Section 135 of Companies Act, 2013
The Companies (Amendment) Act, 2019 received President’s assent and
was published in Official Gazette on 31st July, 2019.
• A. To calculate CSR expenditure, average net profit of 3 immediately
preceding financial year had to be considered. But, there used to be
concerns on how to calculate CSR expenditure for a company which is
newly incorporated or which has not completed 3 years of its operations and
satisfies any one of the condition as specified u/s 135(1).
• With the recent amendment, there is clarity with respect to the above. As per
amendment act, Company who has not completed a period of three financial
years since its incorporation shall consider the average net profits earned by
it during financial years after incorporation.
• B. Prior to amendment act, if a company has not spent the earmarked CSR
expenditure, it had to disclose the reasons in its board report at the annual
general meeting of the company.

What qualifies as CSR activities? Schedule VII
a. Eradication of hunger, poverty and malnutrition, promotion of health care including preventive health care
and sanitation including contribution to the Swach Bharat Kosh set-up by the CG for the promotion of
sanitation and making available safe drinking water
b. Promotion of education including special education and employment enhancing vocation skills
c. Promotion of gender equality and empowerment of 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
d. Environmental sustainability
e. Protection of national heritage, art and culture including restoration of buildings and sites of historical
importance and works of art
f. Measures for the benefit of armed forces veterans, war widows and their dependents
g. Training to promote rural sports, nationally recognized sports, Paralympic sports and Olympic sports
h. Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the CG or the state
governments for socio-economic development and relief and funds for the welfare of the scheduled castes, the
scheduled tribes, other backward classes, minorities and women
i. Contributions or funds provided to technology incubators located within academic institutions which are
approved by the CG
j. Rural development projects
k. Slum area development.

Boards responsibility
(a) 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.
(b) ensure that the activities as are included in Corporate Social
Responsibility Policy of the company are undertaken by the company.

If the company fails to spend such amount,the Board shall, in its report made
specify the reasons for not spending the amount .
ONGOING PROJECT
Unspent amount on ongoing CSR projects:-
• 1. The company within a period of 30 days from the end of the financial year has
to transfer the unspent contribution amount to a special account to be opened in
any scheduled bank, to be called ‘the Unspent Corporate Social Responsibility
Account’.
• 2. The amount so transferred to the designated account, is to be utilized in
pursuance of its obligation towards the Corporate Social Responsibility Policy
within a period of next 3 financial years from the date of such transfer.
• 3. If the Company fails to utilize the said amount, it is required to transfer the
same to a Fund specified in Schedule VII, within a period of 30 days from the date
of completion of the third financial year.

Not a ongoing project
• Unspent amount at the end of Financial Year which is not related to ongoing
project: – the Company has to transfer such unspent amount to a Fund specified
in Schedule VII, within a period of 6 months of the expiry of that financial year.
• Fund specified under schedule VII are:-
• 1. Contribution to the Prime Minister’s national relief fund.
• 2. Any other fund set up by the central govt. for socio – economic development
and relief and welfare of the schedule caste, tribes, other backward classes,
minorities and women;

Penal provisions for non-compliance :
The Amendment Act has introduced penal provisions for non-compliance in
reporting, utilization and transfer of the unspent CSR amount;
• The company shall be punishable with fine which shall not be less than INR
50,000 but which may extend to INR 25 lacs.
• Every officer of the Company who is in default shall be punishable with
imprisonment for a term which may extend to 3 (three) years or with fine which
shall not be less than INR 50,000 but which may extend to INR 5 lacs, or with
both.

REPORTING REQUIREMENT UNDER CARO 2020
•whether, in respect of other than ongoing projects, the company has transferred
unspent amount to a Fund specified in Schedule VII to the Companies Act within a
period of six months of the expiry of the financial year in compliance with second
proviso to sub-section (5) of section 135 of the said Act;
•whether any amount remaining unspent under sub-section (5) of section 135 of the
Companies Act, pursuant to any ongoing project, has been transferred to special
account in compliance with the provision of subsection (6) of section 135 of the said
Act;

Frequently Asked Questions on CSR
(Related to COVID-19)
Whether these contributions qualify as CSR expenditure
S.NO ACTIVITIES QUALIFY/NOT
1 PMCARES FUND QUALIFY
2
Chief Minister's Relief Funds or
State Relief Fund for COVID-19 Shall NOT QUALIFY
3 State Disaster Mngt Authority QUALIFY
4 CSR funds for COVID-19 QUALIFY
5
Payments of salary or wages to
employeees including contract
labour ,during lockdown period Shall NOT QUALIFY
6
Payments of wages to
casual/daily wage workers
,during lockdown period Shall NOT QUALIFY
7
Payments of exgratia to
temporary/casual/daily wage
worlers QUALIFY

CSR Activities done by companies

CSR Section 135 of Companies Act ,2013

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