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April 2014 Copyright - Anil Chawla Law Associates LLP 2
A. Meaning of CSR
B. Applicability & Spending
C. Constitution of CSR Committee
D. Implementation of CSR Strategy
E. CSR Activities
F. Mode of Carrying CSR Activities
G. Reporting Requirements
H. Analysis of CSR Spending
I. Penalties
J. Brainstorming Questions
A1. Companies Responsible for CSR
• Net Worth of Rs. 500 Crores (Rs. Five Billion) or more OR
• Turnover of Rs. 1000 Crores (Rs. Ten Billion) or more OR
• Net Profit of Rs. 5 Crores (Rs. Fifty Million) or more
April 2014Copyright - Anil Chawla Law Associates
LLP4
Every company (whether private or public) with:CRITERIA
Net Worth ≥ Rs. 500 Cr.
Turnover ≥ Rs. 1,000 Cr
Net Profit ≥ Rs. 5
Cr.
5
Every company that satisfies prescribed threshold is required to spend
at least 2% of its average net profit of 3 preceding financial years on
specified CSR activities
Section 3(d) of the proposed CSR Rules, defines Net Profit for
domestic company as: “Net profit before tax as per books of
accounts and shall not include profits arising from branches
outside India‘
“Net profit” for a foreign company means the net profit as per profitand loss account prepared in terms of section 381(a)(1) read with
section 198 of the Companies Act, 2013.
The ‘average net profit’ shall be calculated in accordance with
section 198 [i.e., calculation of net profit prescribed for the purpose of
determining the maximum managerial remuneration]
AMOUNT TO BE SPENT ON CSR ACTIVITIES
COMPUTATION OF PROFIT AS PER SEC 198
6
+/- Particulars Amount
Net profit after tax
XX
+ Allowed Credits
XX
- Credits Disallowed
X
+ Expenses Allowed
X
- Expenses Disallowed
XX
Allowed Credits
Expenses allowed
Expenses Disallowed
Credit Disallowed
Profit on sale of immovable property ( Original Cost – WDV )
Premium on shares or debentures ,Profit on sale of forfeited shares ,
Surplus in P&L on measurement of asset or liability at fair value
Usual Working Charges , Director’s Remuneration, Bonus or Commission paid to Staff , Interest on Loans, Depreciation.
Income Tax ,Compensations, damages or payments made voluntarily ,Capital Loss on sale ofundertaking or part thereof
CONSTITUTION OF CSR COMMITTEE
PRIVATE COMPANY
PUBLIC COMPANY
Composition of CSR committee should be 3 or more directors.
Out of which at least 1 director shall be an independent dIrector
Composition of CSR committee should be 3 or more directors;
If there is no independent director, then any 3 directors may be members of CSR committee.
Foreign COMPANY
Consist of atleast 2 Person
Out of which 1 shall be as specified u/s 380(d)(1)
Other nominated by foreign Company
CSR COMMITTEE ROLE OF THE BOARD
Formulate & Recommend a CSR Policy
Recommend CSR Initiatives
Monitor CSR expenditure
Form CSR Committee
Approve CSR Policy
Ensure Implementation
Disclose CSR Policy on the company’s website
Disclose reasons for not spending amount
STAGES EXPECTED OUTPUT
COMPLIANCE
CHECK
STRUCTURING
OPTIONS
CSR POLICY
DRAFTING
Program
implementation &
monitoring
Review &
Reporting
COMPLIANT LIST OF CSR PROJECT IDENTIFIED
CSR SPENDS IDENTIFIED
IMPLEMENTATION STRUCTURE STREAMLINED
NEW AREAS IDENTIFIED
CSR POLICY DRAFTED
TAX IMPLICATION IDENTIFIED
CREATING SOPS
REALIBLE DATA
IMPACT ASSESSMENT REPORT
ANNUAL CSR REPORT
Eradication of Hunger & Poverty
Protection of National
Heritage, Art & Culture
Environment Sustainability
Benefit of Armed Forces
Veterans
Training to Promote
Rural Sport
Contribution to PM
National Relief Fund
Rural Development
Project
Gender Equality &
Women Empowerment
SwachhBharat
Abhiyan
Restriction on Activities
Activities not mentioned in Company’s CSR Policy – Rule 4(1)
Activities conducted in normal course of business – Rule 4(1)
Activities conducted outside India – Rule 4 (4)
Activities benefitting only employees or families not allowed –
Rule 4 (5)
Building CSR capabilities of employees beyond 5% of CSR
expenditure – Rule 4(6)
Contribution to political party – Rule 4(7)
Mode of Carrying CSR Activities
Trust / Society / section
8 company set up by
the company or its
subsidiary / holding /
associate company
Independent entity
having three years
track record
Collaboration
with other
companies
ALTERNATE 1 ALTERNATE 2 ALTERNATE 3
COMPANY 1 COMPANY 2 COMPANY 1 COMPANY 2
In-house CSR Activity
Govt Schemes / Independent NGOs
Not For-profit arm of the group
CSR ACTIVITIES CARRIED OUT BY EMPLOYEES
Donation to government schemes / independent NGOs
Corporate group forms separate not-for Profit arm to carry out CSR activities
Directors’ Report to include contents of CSR Policy {Sec.
135(4)(a)}
Directors’ Report to General Meeting to include a report about
CSR initiatives as per format in Rule 8 { CSR POLICY RULES
2014 }
Company website to disclose company’s CSR Policy as per Rule
9 { CSR POLICY RULES 2014 }
If there is a failure to spend CSR amount, Board shall in its
report specify the reasons – Sec. 135(5)
1 2 3 4 5 6 7 8
SNO.
CSR PROJECT OR ACTIVITY IDENTIFI-ED
SECTOR IN WHICH THE PROJECT IS COVERED
PROJECT OR PROGRAMME1) LOCAL
AREA
2) SPECIFYTHE STATE AND DISTRICT
AMOUNT OUTLAY PROJECT OR PROGRAM WISE
AMOUNT SPENT ON THE PROJECTSOR PROGRAM
TOTALEXPEN-DITURE UPTO DATE
AMOUNTSSPENT : DIRECT OR THROUGH IMPLEM-ENTINGAGENCY
1
2
PENALTY ON NON REPORTING
COMPANY OFFICER IN DEFAULT
MAX FINE - 25 LACSMIN FINE - 0.50 LACS
IMPRISONMENT- UPTO 3 YEARS
FINE 50,000 TO 5 LACS
Section Deduction available for Deduction (AMOUNT)
35(1)(ii) Sum paid to research association university, college
or other institution to be used for scientific research
1.75 TIMES OF SUM
35(1)(iia) Sum paid to a scientific R&D company for scientific
research.
1.25 TIMES OF SUM
35(1)(iii) Sum paid to research association, university college
or other institution to be used in social science.
1.25 TIMES OF SUM
35(2AA) Any sum paid to National Laboratory or a University
or IIT or a specified person with a direction that such
sum is to be used for scientific research
2 TIMES OF SUM
35CCC Any expenditure on agricultural extension project
notified by CBDT
1.5 TIMES OF SUM
35CCD Any expenditure (not being expenditure in the nature
of cost of any land or building) on any skill
development project notified by CBDT
1.5 TIMES OF SUM
35AC Sum paid to public sector company/local authority/
Etc for carrying out any eligible notified project for
promoting social and economic welfare of the public
1TIME OF SUM
Section Deduction available for Deduction (AMOUNT)
35(1)(ii) Sum paid to research association university, college
or other institution to be used for scientific research
1.75 TIMES OF SUM
35(1)(iia) Sum paid to a scientific R&D company for scientific
research.
1.25 TIMES OF SUM
35(1)(iii) Sum paid to research association, university college
or other institution to be used in social science.
1.25 TIMES OF SUM
35(2AA) Any sum paid to National Laboratory or a University
or IIT or a specified person with a direction that such
sum is to be used for scientific research
2 TIMES OF SUM
35CCC Any expenditure on agricultural extension project
notified by CBDT
1.5 TIMES OF SUM
35CCD Any expenditure (not being expenditure in the nature
of cost of any land or building) on any skill
development project notified by CBDT
1.5 TIMES OF SUM
35AC Sum paid to public sector company/local authority/
Etc for carrying out any eligible notified project for
promoting social and economic welfare of the public
1TIME OF SUM
COMPANY SHOULD
PROVIDE DONATIONS
TO TRUST WHOSE ACTIVITIES ARE ALIGNED TO SOCIAL ACTIVIES CONTAINED IN SCHEDULE VII OF CA 2013
NO DEDUCTIONS U/S 37 OF IT ACT
1961
CSR RULES CEARLY DEFINES ACTIVITIES WHICH SHALL NOT BE CONDUCTED IN
REGULAR COURSE OF BUSINESS.
S.No. Name of Country
WhetherCSR spend / reporting mandatory
1 U.K Voluntary guidelines
2 U.S.A Voluntary guidelines
3 Germany Voluntary guidelines
4 France Mandatory reporting for listed companies in Annual reports
5 Denmark Investors and state owned companies to include information on CSR in their annual Financial reports
6 Sweden Mandatory reporting by state - owned companies
7 Indonesia Natural Resource based companies must allocate budgets for CSR programs and the programs must be run according to government regulations
8 Malaysia Compulsory for companies listed on Bursa Malaysia to disclose their CSR activities or practices
CSR applicable on group companies or individual holding/Subsidiary Company ?
Provision of CSR applicable on Section 8 Companies ?
Donation of money to a trust by a company be treated as CSR Expenditure?
In case multi-locational operations, What shall be area of “preferential locations” ?
Salary paid to staff for CSR activities included in CSR Activities?
CSR provision applicable on Foreign Company having only Project office
One off event like Marathon , Advertisement campaign be considered as CSR ?
Expenditure made by Foreign Holding eligible as expense for Indian Subsidiary co. ?
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