A Beginner’s Guide to understanding the new CSR Amendments
April 27, 2022 | Contributed by Zeeshan Adil
It was in 1953 when for the very first time the world was introduced with the word Social Responsibilities of the businessman by American Economist Howard Bowen (Also referred to as the father of CSR). In the 1970s it evolved and came to be known as Corporate Social Responsibility (CSR) as we know it today. CSR is a concept where companies try to include social responsibilities and issues that their organisation can assist in dealing with, while simultaneously continuing the work and fulfilling their own purpose. In 2014, India became the first country in the world to legally mandate Corporate Social Responsibility(CSR) with the introduction of Companies Act 2013 with Section 135 of the act legally obligating CSR for certain Companies, which was amended in January 2021 with the revision of Section 135 of the Companies Act, 2013.
What is CSR and its rules?
CSR which has been turned into a legislation in India and is obligatory for every company that has
- net worth of rupees five hundred crore or more,
- or turnover of rupees one thousand crore or more
- or a net profit of rupees five crore or more.
Eligible companies are instructed to form a committee consisting of three or more directors with at least one of them being independent i.e. not being associated to the company in any way. This committee’s job is to suggest the ways in which companies can help the society and also the expenditures that the company must take to fulfill the purposes of the activities. The committee also has to ensure that 2% of the average net-profit made by the company in the previous 3 years is spent in every financial year. If a company fails to adhere to it, then it’s the responsibility of the board to make a report and cite the reasons as to why the company failed to adhere to the rules. It is preferred that the company uses the money embarked for
CSR in the area or locality it operates in. Schedule VII of the companies act, 2013 talks about the activities that companies can pursue and the committee should ensure that the activity falls under the list;
- Eradicating Poverty, hunger.
- Promoting Health care
- Improvement in Education
- Improving Gender Equality
- Facilities for senior citizens
- Reducing inequalities faced by backward groups
- Safeguarding Environment
- Protecting Natural Heritage
- Funding Public Universities
- Providing Assistance for development in rural and slum areas
- Disaster Management relief activities
If companies fail to comply with the rules of CSR, then they would be liable to pay a minimum fine of Rs.50,000 with the maximum fine being Rs.2,500,000. If any officer is found as the defaulter, they would be liable to a punishment of imprisonment which may extend to 3 years or a fine of Rs.50,000 which can increase to 500,000 or both.
The reason to have legislation concerning the CSR in today’s time is paramount and necessary especially in the era of capitalism. It’s important for corporations to look beyond the profit of their companies and participate in social and economic development of the society and play an important role as corporate citizens considering what they owe to the society.
1. Following are the activities that are no longer included under CSR and companies must make sure that none of these activities are performed under the garb of CSR as it won’t be considered, because they have been explicitly excluded from CSR;
- Activities that can be considered as the normal or common course of business for the company or activities that help their own employees.
- Contributing to a political party.
- Activities taking outside of India except a sportsperson representing the nation.
- Carrying out activities to fulfill the purposes of already present law of a legislation in India.
2. CSR can be solely implemented by the company itself or through;
- A registered public trust or a registered society.
- A company established under the The Company act, 2013 or a registered trust or society established by the state or central government.
- An entity established by the parliament of India or state legislature.
3. A company can collaborate with other companies to implement their CSR activities byensuring that the reports are submitted separately by the respective companies.
4. It’s the responsibility of the board members to ensure that the funds audited for CSR are used for the purposes that have been decided and the concerned officer certifies it to affect.
5. The CSR Committee shall make an annual action plan in parallel to the CSR policy which should consist of projects and activities that have been approved, the manner in which the activities will be implemented and keeping track of the activities and programmes.
6. The board must also make sure that the expenditure of the administrative overhead (Administrative work) should not exceed 5% of the total CSR expenditure of the financial year. There is no cap on the expenditure for evaluating, monitoring or planning.
7. If there is a surplus amount arising out of the CSR activities it shall not be incorporated in the company’s profit. It should either be used in the same project again or should be transferred to the unspent account of the CSR and be utilized accordingly as per the action plan or transferred to a fund specified under the schedule VII.
The new CSR regulations will surely have a big impact on our society with NGOs getting better financial assistance from big corporate companies to help them continue their work for good causes. For example, in India, every 3 minutes a child is born with a heart defect, indicating that over 200,000 children are born with it in a year. The number is staggering and surely indicates that NGOs for heart treatment in India can really benefit from the new amendments made to the CSR which would help stabilize the situation by ensuring these children get timely treatment. CSR for children, gender equality and education is something that big corporations can look into. These rules have opened up a door with various possibilities that can enhance funding for NGOs for heart treatment in India, if implemented wisely. CSR rules have evolved a lot in the past 8 years and have shifted from what it was originally meant to do, but has still managed to remain meaningful and effective. We still have a long way to go with CSR for children, but I’m hopeful that the new amendments will make it more efficient for creating impact on ground zero.