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Decoding CSR Compliance: Your Essential Guide for Indian Businesses

Decoding CSR Compliance: Your Essential Guide for Indian Businesses

Hey there, business owners! Ever wondered about Corporate Social Responsibility (CSR) and what it really means for your company? Beyond just being a buzzword, CSR has become a mandatory compliance requirement for many Indian businesses. It’s not just about doing good; it’s about adhering to specific rules that ensure your company contributes positively to society. At FilingWorld.in, we understand that navigating these regulations can seem daunting, so let's break down the key CSR compliance requirements for companies in simple terms.

What Exactly is CSR?

In essence, Corporate Social Responsibility refers to a company's initiatives to assess and take responsibility for the company's effects on environmental and social well-being. It's about contributing to societal goals of a philanthropic, activist, or charitable nature by engaging in or supporting volunteering or ethically oriented practices. Under Section 135 of the Companies Act, 2013, CSR isn't just an option; it's a legal obligation for eligible entities.

Is Your Company Under the CSR Radar?

Not every company needs to comply with CSR provisions. Your company falls under the CSR ambit if, in the immediately preceding financial year, it had any of the following:

  • A net worth of Rupees 500 crore or more.
  • A turnover of Rupees 1000 crore or more.
  • A net profit of Rupees 5 crore or more.

This applies to both Indian companies and foreign companies with a branch office or project office in India.

The Nitty-Gritty: Key Compliance Requirements

If your company meets the criteria, here’s what you need to do:

  1. Mandatory Spending: You must spend at least 2% of your average net profits made during the three immediately preceding financial years on CSR activities.
  2. CSR Committee: Form a CSR Committee of the Board, which includes at least three directors, one of whom must be an independent director. This committee formulates and recommends the CSR Policy to the Board.
  3. CSR Policy: Develop a detailed CSR policy outlining the activities the company plans to undertake, the modalities of execution, and the implementation schedule. This policy must be disclosed on the company's website.
  4. Approved Activities: CSR activities must fall within the ambit of Schedule VII of the Companies Act, 2013, which lists permissible areas like promoting education, eradicating hunger, promoting gender equality, environmental sustainability, and more.
  5. Reporting: The Board's Report needs to include an Annual Report on CSR activities, detailing the projects undertaken, amount spent, and reasons for any unspent amount. Unspent amounts for ongoing projects must be transferred to a special account within 30 days of the financial year-end. For non-ongoing projects, it goes to a specified fund within six months.

Beyond Compliance: The Real Benefits

While compliance is key, effective CSR builds a stronger brand image, boosts employee morale, enhances stakeholder trust, and contributes to sustainable development. It's an investment in your company's future and the community it operates within.

Navigating these corporate social responsibility regulations can be complex, but you don't have to go it alone. FilingWorld.in is here to help you understand and fulfill all your CSR obligations seamlessly, ensuring your business stays compliant and makes a meaningful impact. Contact us today for expert guidance!

FAQs
CSR provisions apply to every company (private, public, or foreign) that, in the immediately preceding financial year, meets any of the following criteria: <br> A net worth of ?500 crore or more. <br> A turnover of ?1,000 crore or more. <br> A net profit of ?5 crore or more.
An eligible company must spend at least 2% of its average net profits made during the immediately preceding three financial years. This amount must be spent on activities specified in Schedule VII of the Companies Act, 2013.
The CSR activities must be in line with the national development agenda. Schedule VII lists a wide range of permitted activities, including: <br> Eradicating hunger, poverty, and malnutrition. <br> Promoting education, healthcare, and sanitation. <br> Ensuring environmental sustainability. <br> Promoting gender equality and empowering women. <br> Protecting national heritage and art.
The rules for unspent funds are strict and depend on whether the funds are for an "ongoing project" or not. <br> For an ongoing project, the unspent amount must be transferred to a special "Unspent Corporate Social Responsibility Account" within 30 days of the financial year-end and must be spent within 3 years. <br> For any other unspent amount, it must be transferred to a fund specified in Schedule VII within 6 months of the financial year-end.
Companies must include a detailed annual report on CSR in their Board's Report. This report must contain a summary of the CSR policy, the projects undertaken, the amount spent, and, if applicable, the reasons for not spending the full amount. Additionally, companies must file Form CSR-2 with the MCA as an addendum to their annual financial statements.
Non-compliance can lead to severe penalties. <br> The company can be fined up to ?10 crore or twice the unspent amount, whichever is less. <br> Every defaulting officer can face a penalty of up to ?2 lakh or one-tenth of the unspent amount, whichever is less.