Share & grow the world's knowledge!
We want to connect the people who have knowledge to the people who need it, to bring together people with different perspectives so they can understand each other better, and to empower everyone to share their knowledge.
Whether an activity which a company is required to do as per its statutory obligations under any law, would be termed as CSR activity?
No, activities that a company is required to perform as per its statutory obligations under any law are not considered CSR (Corporate Social Responsibility) activities. Here's why: Nature of CSR:CSR involves voluntary actions taken by a company to promote social welfare and contribute to sustainableRead more
No, activities that a company is required to perform as per its statutory obligations under any law are not considered CSR (Corporate Social Responsibility) activities. Here’s why:
-
-
-
-
See lessNature of CSR:
CSR involves voluntary actions taken by a company to promote social welfare and contribute to sustainable development, going beyond what is legally required.
Statutory Obligations vs. CSR:
Activities mandated by law (such as environmental compliance, mandatory disclosures, or statutory audits) are compulsory business expenses. These are incurred as part of fulfilling legal requirements and do not fall under CSR, which is aimed at additional social initiatives.
Eligible CSR Activities:
To qualify as CSR, the expenditure must be on activities listed in Schedule VII of the Companies Act, 2013, and should be undertaken voluntarily to benefit society—such as education, health, rural development, and environmental sustainability projects.
Key Takeaway:
Simply put, if an activity is compulsory under any law, it cannot be treated as CSR because it is not a voluntary, extra initiative taken by the company for social good.
There are certain corporate groups who run hospitals and educational institutions, will this be considered as CSR?
When it comes to Corporate Social Responsibility (CSR), it's important to distinguish between core business operations and activities undertaken for social welfare. Here's what you need to know: 1. Core Business vs. CSR Expenditure Core Business Operations:If a corporate group is primarily engaged iRead more
When it comes to Corporate Social Responsibility (CSR), it’s important to distinguish between core business operations and activities undertaken for social welfare. Here’s what you need to know:
1. Core Business vs. CSR Expenditure
Core Business Operations:
If a corporate group is primarily engaged in running hospitals or educational institutions as part of its main business, the related expenditures are treated as regular business expenses.
A company that operates a chain of hospitals for profit cannot count its operating costs as CSR expenditure because these expenses are integral to its business operations.
CSR Activities:
CSR expenditure is meant for activities that are not part of the regular business but are undertaken for the benefit of society.
If a company donates funds to support an independent hospital or educational institution, or if it initiates additional projects in these sectors that go beyond its regular operations, such expenditure can qualify as CSR spending.
2. Alignment with CSR Guidelines
For any expenditure to be considered CSR:
Conclusion
Operating hospitals and educational institutions as part of a company’s primary business does not count as CSR expenditure.
If a company supports or donates to such institutions outside of its core operations—focusing on social welfare—it may be able to claim that expenditure as CSR, provided it meets the guidelines under Schedule VII.
By clearly separating core business activities from purely philanthropic initiatives, companies can ensure they comply with CSR requirements while maximizing their positive impact on society.
See lessWhat are the consequences in case a prescribed company does not spend two percent of its average net profits on CSR activities in pursuance of its CSR Policy?
Under Section 135 of the Companies Act, 2013, prescribed companies must spend at least 2% of their average net profits (calculated over the preceding three years) on CSR activities. If a company fails to meet this CSR spending obligation, the following consequences apply: 1. Transfer to Unspent CSRRead more
Under Section 135 of the Companies Act, 2013, prescribed companies must spend at least 2% of their average net profits (calculated over the preceding three years) on CSR activities. If a company fails to meet this CSR spending obligation, the following consequences apply:
1. Transfer to Unspent CSR Account
The unspent CSR funds must be transferred to a special account called the “Unspent CSR Account” within 30 days from the end of the financial year.
The funds in this account can be carried forward and must be spent on CSR activities in subsequent years. They remain blocked until they are utilized for eligible CSR projects.
2. Disclosure Requirements
Companies are required to disclose details of any unspent CSR funds in their Annual Report and Directors’ Report. This enhances transparency and accountability regarding the CSR activities of the company.
3. Interest on Unspent Funds
If the funds remain unspent for a prolonged period, the company may be required to account for interest on the unspent amount. This serves as a financial deterrent against the continuous accumulation of unutilized CSR funds.
4. Impact on Corporate Governance
Persistent failure to spend the mandated CSR amount may attract regulatory scrutiny and adversely affect the company’s reputation.
Directors are expected to monitor CSR spending closely. Repeated non-compliance can reflect poorly on the Board’s oversight and corporate governance practices.
Key Takeaway
While there is no direct monetary penalty for not spending the required CSR amount, the company is compelled to:
- Transfer the unspent amount to the Unspent CSR Account,
- Carry forward and eventually utilize these funds in future CSR activities, and
- Account for interest if the funds remain unspent over time.
See lessWhether section 135 is required to be complied by the company as well as its holding or subsidiary company?
Under Section 135 of the Companies Act, 2013, the Corporate Social Responsibility (CSR) provisions apply on a stand-alone basis to every company incorporated in India that meets the prescribed financial thresholds. This means: Each Company’s Individual Obligation:Whether it’s a holding company, a suRead more
Under Section 135 of the Companies Act, 2013, the Corporate Social Responsibility (CSR) provisions apply on a stand-alone basis to every company incorporated in India that meets the prescribed financial thresholds. This means:
-
-
-
See lessEach Company’s Individual Obligation:
Whether it’s a holding company, a subsidiary, or any other corporate entity, the CSR requirements apply individually. Each company must evaluate its own financial criteria (net worth, turnover, or net profit) for CSR eligibility.
No Automatic Transfer of CSR Responsibility:
The CSR mandate does not automatically flow from a holding company to its subsidiaries (or vice versa). If a subsidiary meets the threshold, it must comply with CSR provisions even if the holding company does not—and the reverse is also true.
Group Considerations:
Even if companies are part of the same group, each entity is treated as a separate legal entity. Therefore, the CSR obligation is determined separately for each company.
From which Financial Year does the CSR expenditure & reporting begin ?
CSR (Corporate Social Responsibility) obligations under Section 135 of the Companies Act, 2013 became effective from the financial year 2014-15 (Assessment Year 2015-16). This means that companies meeting the prescribed CSR thresholds were required to start spending on CSR activities and report thesRead more
CSR (Corporate Social Responsibility) obligations under Section 135 of the Companies Act, 2013 became effective from the financial year 2014-15 (Assessment Year 2015-16). This means that companies meeting the prescribed CSR thresholds were required to start spending on CSR activities and report these expenditures in their annual reports beginning with FY 2014-15.
Key Points:
For Existing Companies:
Companies that were in operation before the implementation of CSR provisions had to start complying from FY 2014-15.
For Newly Incorporated Companies:
A company incorporated after CSR provisions came into force will generally have to start its CSR activities either in the financial year of its incorporation or in the immediately following financial year, as per the guidelines issued by the Ministry of Corporate Affairs.
Reporting Requirements:
CSR details, including expenditure, must be disclosed in the Directors’ Report as part of the Annual Report filed with the Registrar of Companies.
See less
Whether the provisions of CSR are applicable to section 8 companies?
Under the Companies Act, 2013, the Corporate Social Responsibility (CSR) provisions under Section 135 are designed for companies that are profit-oriented and meet certain financial thresholds (net worth, turnover, or net profit). Section 8 companies, on the other hand, are established as not-for-proRead more
Under the Companies Act, 2013, the Corporate Social Responsibility (CSR) provisions under Section 135 are designed for companies that are profit-oriented and meet certain financial thresholds (net worth, turnover, or net profit). Section 8 companies, on the other hand, are established as not-for-profit entities with a primary objective of promoting social causes, art, science, research, or social welfare.
Key Points:
Nature of Section 8 Companies:
Section 8 companies are created to operate on a non-profit basis. Their main objective is to further social, charitable, or other public welfare causes, and they do not distribute profits to shareholders.
CSR Applicability:
The CSR provisions under Section 135 are applicable only to companies that meet certain financial thresholds (₹500 crores net worth, ₹1000 crores turnover, or ₹5 crores net profit) and are profit-making. Since Section 8 companies operate on a not-for-profit basis, they are not required to comply with CSR provisions.
Reasoning:
The intent behind CSR is to encourage profit-making companies to contribute to social welfare by setting aside a portion of their profits for CSR activities. Section 8 companies, being inherently non-profit, are already geared toward social causes and are thus exempt from these additional CSR obligations.
Conclusion:
CSR provisions under Section 135 of the Companies Act, 2013 do not apply to Section 8 companies because their primary focus is on social welfare and they operate on a not-for-profit basis.
See lessCan donation of money to a trust by a company be treated as CSR expenditure of the company?
Yes, a donation of money to a trust by a company can be treated as CSR expenditure if certain conditions are met. Here’s what you need to know: Eligibility Criteria: Trust’s Purpose:The trust must be established exclusively for undertaking CSR activities or have a proven track record of at least thrRead more
Yes, a donation of money to a trust by a company can be treated as CSR expenditure if certain conditions are met. Here’s what you need to know:
Eligibility Criteria:
Trust’s Purpose:
The trust must be established exclusively for undertaking CSR activities or have a proven track record of at least three years in similar CSR projects. This ensures that the funds are used specifically for social welfare initiatives as outlined in Schedule VII of the Companies Act, 2013.
Utilization of Funds:
The company must ensure that the donation is used solely for approved CSR activities. Proper documentation should be maintained to confirm that the funds are directed toward social causes.
Important Points:
-
-
See lessNon-Deductibility for Tax Purposes:
While CSR expenditure is mandatory for companies and must be reported in the Annual Report, it cannot be claimed as a tax deduction under Section 37(1) of the Income Tax Act, 1961. However, donations to eligible organizations might qualify for deductions under other provisions (e.g., Section 80G), subject to separate conditions.
Board Approval and Reporting:
The donation must be approved by the company’s Board as part of its CSR policy. The expenditure should then be disclosed in the Directors’ Report along with details of the CSR activities undertaken.