What is the applicability of Section 135 of the Companies Act, 2013?
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Section 135 of the Companies Act, 2013 lays down the provisions for Corporate Social Responsibility (CSR). It specifies which companies are required to undertake CSR activities, along with the extent of expenditure. Here’s what you need to know: Who Is Covered Under Section 135? A company is requireRead more
Section 135 of the Companies Act, 2013 lays down the provisions for Corporate Social Responsibility (CSR). It specifies which companies are required to undertake CSR activities, along with the extent of expenditure. Here’s what you need to know:
Who Is Covered Under Section 135?
A company is required to comply with Section 135 if, in any financial year, it satisfies any one of the following thresholds based on its immediately preceding financial year:
The company’s net worth is ₹500 crores or more.
The company’s turnover is ₹1,000 crores or more.
The company’s net profit is ₹5 crores or more.
Key Points:
Applicability to Both Public and Private Companies:
Both public and private companies meeting these financial thresholds must adopt a CSR policy and spend at least 2% of their average net profit (calculated over the preceding three financial years) on eligible CSR activities.
CSR Committee:
Such companies must form a CSR Committee (which must include at least one independent director) to oversee CSR activities and ensure transparency.
Exclusions:
Certain companies, like dormant companies or those falling under specific exemptions, may not be required to comply with CSR provisions even if they meet the financial criteria.
Year-by-Year Assessment:
The CSR obligation is determined annually based on the financial performance of the company in the immediately preceding financial year. If a company falls below the threshold in subsequent years, the CSR mandate does not apply for those years.
Summary Table
If any one of these criteria is met in the immediately preceding financial year, the company is obligated to implement CSR activities as per Section 135.
Conclusion
Section 135 applies to companies (both public and private) that meet the above financial thresholds. If a company qualifies, it must form a CSR Committee, develop a CSR policy, and spend at least 2% of its average net profit (from the past three years) on projects listed under Schedule VII of the Act.
See lessnder Section 135 of the Companies Act, 2013, a company is required to undertake Corporate Social Responsibility (CSR) activities if, in any financial year, it meets at least one of the following thresholds based on its immediately preceding financial year: Net Worth: ₹500 crores or more Turnover: ₹1Read more
nder Section 135 of the Companies Act, 2013, a company is required to undertake Corporate Social Responsibility (CSR) activities if, in any financial year, it meets at least one of the following thresholds based on its immediately preceding financial year:
How Does Loss in Preceding Years Affect CSR Compliance?
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- If the company has incurred losses in one or more of those years, the average net profit may be low or even negative.
- In such cases, while the company is still required to comply with all the CSR provisions (such as forming a CSR Committee and disclosing CSR activities), its mandatory CSR expenditure may be nil or lower due to a negative or low average net profit.
See lessTurnover Criterion:
Even if a company has a turnover of ₹1000 crores or more, it qualifies for CSR compliance regardless of its profitability. In other words, the requirement to have a CSR policy and report CSR activities is triggered by the turnover criterion alone.
Calculation of CSR Spend:
The actual amount a company must spend on CSR is computed as 2% of the average net profit of the company for the preceding three financial years.