THE CORPORATE SOCIAL RESPONSIBILITY (POLICY) RULES, 2014

Ministry of Corporate Affairs, Government of India on 27th February, 2014 announced the Corporate Social Responsibility (Policy) Rules 2014 under Section 135 of the new Companies Act 2013. Section 135 pertains to spending for the purpose of Corporate Social Responsibility by companies.

A FORMAL FRAMEWORK FOR SOCIAL SPENDING BY CORPORATES

Effective from - April 1, 2014

How Much?

2% of Average Profit of previous three years.

(Profits from overseas branches and dividends from other Companies not included in Net Profit for calculation).

Who?

• Companies with Net Worth of Rs. 500 crore or Turnover of over Rs. 1,000 crore or Net Profit of over Rs. 5 crore.
• Foreign Companies registered in India.

What all? 

There are many new additions when compared to the CSR Activities that enlists in the Schedule VI of the Act, which are as follows:

• Livelihood

• Enhancement and rural development projects

• Measures for benefit of armed forces, veterans, war-widows and their dependents.

• Working towards protection of National Heritage, Art & Culture.

• Reducing inequalities faced by socially & economically backwards.

• Protection of Flora & Fauna, animal welfare, agro-forestry, etc.

Where?

CSR Activities will have to be within India.

How?

Company's Board will decide in accordance with its CSR Policy and the decision of its CSR Committee.

Do's & Don'ts

• Surplus from CSR cannot be included in Profit.

• CSR work can be done through a registered Trust or Society or a separate Company.

• Companies can collaborate with other Companies but will have to report separately.

One major addition in Section 135 is provision of upto 5% of the CSR budget for training and capacity building of employees and implementing partners for CSR.

Composition of CSR Committee

Every Company including its Holding or Subsidiary, and a Foreign Company having its branch office or project office in India which fulfills the quoted applicability criteria.

Who shall not be required to constitute the CSR Committee?

Every Company which ceases to be a Company quoted under the applicability criteria for three consecutive financial years.

CSR Committees

(i) An unlisted Public Company or a Private Company covered which is not required to appoint an Independent Director - Shall have its CSR Committee without such Director.

(ii) A Private Company - Having only two directors on its Board  shall constitute its CSR Committee with two such Directors.

(iii) With respect to Foreign Company - Shall comprise of at least two Persons* of which one person shall be nominated by the Foreign Company.

*Person under section 380(1)(d) of the Companies Act, 2013 means - The name and address or the names and addresses of one or more persons resident in India authorised to accept on behalf of the company service of process and any notices or other documents required to be served on the company.

CSR Reporting

An emphasis is given to disclose the CSR expenditure. The Board will have to include an Annual Report on CSR from 2014-2015 on wards.

In case of Foreign Company - Balance Sheet shall contain an Annexure regarding report on CSR.

Display of CSR activities on its website

Following the Board's Approval, the CSR Policy will have to be disclosed on the Company's website.