Statutory Requirements for CSR
Corporate Social Responsibility in India governed by section 135 of the Companies Act,2013, passed by both Houses of the Parliament, and by the President of India on 29 August 2013 lays down certain provisions for companies.
- Every company having 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 during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.
- The Board's report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee.
- The Corporate Social Responsibility Committee shall
- (a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII;
- (b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and
- (c) monitor the Corporate Social Responsibility Policy of the company from time to time.
- The Board of every company referred to in sub-section (1) shall—
- (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, if any, in such manner as may be prescribed; and
- (b) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.
- The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy:
Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities.
Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount.
Explanation - For the purposes of this section “average net profit” shall be calculated in accordance with the provisions of section 198.
Schedule 7 of the Companies Act lays down the priority areas which is indicative of the activities which companies can undertake as a part of their CSR initiatives.
Section 135 shall not apply for a period of five years from the commencement of business of a Specified IFSC public company vide notification no. 8(E) dated 04 January,2017.
Section 135 shall not apply for a period of five years from the commencement of business of a Specified IFSC private company vide notification no. 9(E) dated 04 January,2017.