Updated: Mar 26, 2021
Following an amendment to the Companies Act, 2013, in April 2014, India became the world's first country to make corporate social responsibility (CSR) mandatory. As part of every CSR enforcement, corporations should spend income on fields like education, poverty, gender equity, and hunger.
The Ministry of Corporate Affairs has announced that companiess' investments to tackle the COVID-19 (coronavirus) epidemic will be counted as CSR operations.
The funds could be used for a variety of COVID-19-related programs, including healthcare promotion, including preventive healthcare and sanitation, as well as emergency relief. Here you can find the most up-to-date information on India COVID-19.
Companies with a net worth of INR 5 billion (US$70 million) or more, an annual turnover of INR 10 billion (US$140 million), or a net profit of INR 50 million (US$699,125) or more are required to spend 2% of their average net income for three years on CSR, according to an amendment to the Companies Act, 2013.
Before that, companies could opt out of the CSR clause, but they were required to report their CSR expenses to shareholders. CSR covers, but is not limited to, the following activities:
Projects relating to activities listed in the Companies Act; or Projects relating to activities taken by the business board on the recommendation of the CSR Committee, as long as such activities are linked to products listed in the Companies Act.
Businesses should be aware that charges for CSR are not deductible in the calculation of taxable profits. The government, on the other hand, is considering re-evaluating this clause, as well as other CSR provisions enacted recently under the Companies (Amendment) Act, 2019 (“the Act”).
Companies (Amendment) Act, 2019 amendments to CSR
Previously, if a company did not completely spend its CSR funds in a given fiscal year, it could take the funds forward and spend them in the next fiscal year, in addition to the money allocated for that year.
The Act's CSR amendments also force businesses to deposit all unspent CSR funds into a fund formed under Schedule VII of the Act by the end of the fiscal year. This balance must be used within three years of the conversion date, or the money will be deposited into one of the specified funds.
Non-compliance is punishable by a monetary fine as well as imprisonment under the current law. The punishment varies between INR 50,000 (US$700) to INR 2.5 million (US$35,000), with the company's defaulting officer facing up to three years in jail, a fine of up to INR 500,000 (US $7,023), or both.
The government, on the other hand, is still reviewing these rules after the industry objected to the stringent provisions, especially the prison sentences for CSR violations, and has yet to bring them into action.
The CSR framework
CSR is the method of measuring and reviewing an organization's social effects and responsibilities. It starts with a summary of the following aspects of each company:
Although the most successful CSR plans ensure that companies obey the rules, they also ensure that their contributions promote the growth and prosperity of disadvantaged populations and the environment. CSR can also be long-term, requiring operations that a company can maintain without jeopardizing its corporate objectives.