CORPORATE SOCIAL
RESPONSIBILITY
THE NEW GAME CHANGER
Dr. Bhaskar Chatterjee
DG&CEO
Indian Institute of Corporate Affairs
CSR PROVISIONS of the COMPANIES ACT
SECTION 135
1) Every company having a net worth of rupees five
hundred crore or more (100 million $ or more), or a
turnover of rupees one thousand crore or more (200
million $ or more) , or a net profit of rupees five crore
or more (1 million $ 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;
2) The Board's report shall disclose the composition of the
Corporate Social Responsibility Committee.
2
SECTION 135 {CONTD.}
3) 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.
3
SECTION 135 {CONTD.}
4) 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 the 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.
.
4
SECTION 135 {CONTD.}
5) 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.
5
SECTION 135 {CONTD.}
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 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.
6
SCHEDULE VII
7
SCHEDULE VII
8
SCHEDULE VII
9
SCHEDULE VII
10
CSR PROVISIONS FOR HEALTH SECTOR
Pharma firms will get CSR benefits only if they donate
medicines to the poor;
1) Delhi High Court orders Ministry of Corporate Affairs to
add this condition to CSR Rules;
2) MCA submitted that it has decided to amend the entries in
the Schedule VII to the extent that “promoting preventive
health care” will be modified to “promoting healthcare
including preventive healthcare”;
3) MCA said this would encompass the entire health care
area, including the treatment of diseases, etc.
4) MCA will make this clarification official by way of inserting
an explanatory note in CSR Rules.
11
Under Clause (o) of Sub-Section (3) of
Section 134
There shall be attached to statements laid before a
company in a general meeting, a report by its Board
of Directors, which shall include:
(o) The details about the policy developed and
implemented by the company on corporate social
responsibility initiatives taken during the year.
12
Sub Section (8) of Section 134
If a company contravenes the provisions of this
section, the company shall be punishable with
fine which shall not be less than fifty thousand
rupees but which may extend to twenty-five lakh
rupees and every officer of the company who is
in default shall be punishable with
imprisonment for a term which may extend to
three years or with fine which shall not be less
than fifty thousand rupees but which may extend
to five lakh rupees, or with both.
13
Section 450
 If a company or any officer of a company or any other
person contravenes any of the provisions of this Act or
the rules made thereunder, or any condition, limitation
or restrictions subject to which any approval, sanction,
consent, confirmation, recognition, direction or
exemption in relation to any matter has been accorded,
given or granted, and for which no penalty or
punishment is provided elsewhere in this Act, the
company and every officer of the company who is in
default or such other person shall be punishable with
fine which may extend to ten thousand rupees, and
where the contravention is continuing one, with a further
fine which may extend to one thousand rupees for every
day after the first during which the contravention
continues.
14
What is CSR and what is not?
What is CSR?
What is not CSR?
It
should
measurable;
be
rupee That which is not rupee
measurable is not a CSR
activity;
It must bring direct benefits to
marginalized , disadvantaged,
poor or deprived sections of
the community;
If it does not benefit the poor
& backward sections of the
community it is not a CSR
activity;
It should not benefit only the
employees of the company &
their families;
Employee benefits will not
count as CSR;
15
What is CSR?
What is not CSR?
CSR activities must be in the form of Pure philanthropy or
projects/programmes.
Thus
CSR mere donations will not
activities should be projectivized ;
count as CSR
Components of a project are as
follows:
•Need Based Assessment/Baseline
Survey/Study
•Clearly identified time frame
•Specific annual financial allocation
•Clearly identified milestones
•Clearly identified & measurable
objectives /goals
•Robust & periodic review &
monitoring
•Evaluation & Assessment (Where
16
possible, by third party)
What
WhatisisCSR
CSR and what isWhat
not?is not CSR?
Corporates are expected to
fund projects from their own
accounts
through
implementing agencies;
Funds/moneys
deposited in Central or
Government accounts
will not count as CSR;
Government
Government
programmes/initiatives can be programmes/initiatives
complemented/supplemented should
not
be
duplicated.
Programmes/projects must be Programmes/projects
within India;
undertaken
outside
17
India will not count
as
What
What
is not CSR?
WhatisisCSR
CSR and what
is not?
It should be independent Activities which are in
of compliance with any compliance
with
any
regulation or law;
regulation or law will not
count as CSR;
Activities undertaken in
pursuance
of
normal
course of business of a
company.
18
Final Rules on MCA Website
Definitions:
“Corporate Social Responsibility (CSR)” means and
includes but is not limited to:(i) Projects or programs relating to activities
specified in Schedule VII to the Act; or
(ii) Projects or programs relating to activities
undertaken by the board of directors of a company
(Board) in pursuance of recommendations of the
CSR Committee of the board as per declared CSR
Policy of the company subject to the condition that
such policy will cover subjects enumerated in
Schedule VII of the Act.
19
Final Rules on MCA Website..{CONTD.}
“CSR Committee” means the Corporate Social
Responsibility Committee of the Board referred to
in Section 135 of the Act;
CSR Policy related to the activities to be undertaken
by the company as specified in Schedule VII to the
Act and expenditure thereon, excluding activities
undertaken in pursuance of normal course of
business of a company;
20
Final Rules on MCA Website.{CONTD.}
“Net Profit” means the net profit of a company as per its
financial statement prepared in accordance with the
applicable provisions of the Act, but shall not include the
following, namely:Any profit arising from any overseas branch or
branches of the company, whether operated as a
separate company or otherwise; and
Any dividend received from other companies in India,
which are covered under and complying with the
provisions of section 135 of the Act.
21
Final Rules on MCA Website..{CONTD.}
 Provided that net profit in respect of a financial year
for which the relevant financial statements were
prepared in accordance with the provisions of the
companies Act 1956, (1 of 1956) shall not be required
to be re-calculated in accordance with the provisions
of the Act;
 Provided further in case of a foreign company covered
under these rules, net profit means the net profit of
such company as per profit and loss account prepared
in terms of clause (a) of sub-section (1) of section 381
read with section 198 of the Act.
22
Notified Rules on MCA Website..{CONTD.}
Corporate Social Responsibility:
(i) Every company including its holdings or
subsidiary and a foreign company defined under
clause (42) of section 2 of the Act having its branch
office or project office in India, which fulfills the
criteria specified in sub-section (1) of section 135
of the Act shall comply with the provisions of
section 135 of the Act and these rules.
Provided that net worth , turnover or net profit of a
foreign company of the Act shall be computed in
accordance with balance sheet and profit and loss
account of such company prepared in accordance with
the provisions of clause (a) of sub-section (1) of
section 381 and section 198 of the Act.
23
Final Rules on MCA Website...{CONTD.}
(ii) Every company which ceases to be a company
covered under sub-section (1) of section 135 of the Act
for three consecutive financial years shall not be
required to(a) Constitute a CSR Committee; and
(b) Comply with the provisions contained in subsection (2) to (5) of the said section,
Till such time it meets the criteria specified in subsection (1) of section 135.
24
Final Rules on MCA Website..{CONTD.}
CSR Activities:
(1) The CSR Activities shall be undertaken by the
company, as per its stated CSR Policy, as projects or
programs or activities (either new or on going),
excluding activities undertaken in pursuance of its
normal course of business.
(2) The Board of a company may decide to undertake its
CSR activities approved by the CSR Committee,
through a registered trust or a registered society or a
company established by the company or its holding
or subsidiary or associate company under section
8
25
of the Act or otherwise:
Notified Rules on MCA Website..{CONTD.}
Provided that(i) If such trust, society or company is not established by the
company or its holding or subsidiary or associate company, it
shall have an established track record of three years in
undertaking similar projects or programs;
(ii) The company has specified the project or programs to be
undertaken through these entities, the modalities of utilization
of funds on such projects and programs and the monitoring
and reporting mechanism.
(3)
A company may also collaborate with other companies for
undertaking projects or programs or CSR activities in such a
manner that the CSR Committees of respective companies are in a
position to report separately on such projects or programs in
accordance with these rules.
26
Notified Rules on MCA Website..{CONTD.}
(4) Subject to provisions of sub-section (5) of section 135
of the Act the CSR projects or programs or activities
undertaken in India only shall amount to CSR
Expenditure.
(5) The CSR Projects or programs or activities that benefit
only the employees of the company and their families
shall not be considered as CSR activities in accordance
27
with section 135 of the Act.
Notified Rules on MCA Website..{CONTD.}
(6) Companies may build CSR capacities of their own
personnel as well as those of their Implementing
Agencies through institutions with established track
records of at least three financial years but such
expenditure shall not exceed five per cent of total CSR
expenditure of the company in one financial year.
(7) Contribution of any amount directly or indirectly to
any political party under section 182 of the Act, shall not
be considered as a CSR activity.
28
Final Rules on MCA Website..{CONTD}.
CSR Committees:(1) The companies mentioned in the rule 3 shall constitute CSR
Committee as under(i) An unlisted public company or a private company covered
under sub-section (1) of section 135 which is not required to
appoint an independent director pursuant to sub-section (4)
of section 149 of the Act, shall have its CSR Committee without
such director;
(ii) A private company having only two directors on its Board shall
constitute its CSR Committee with two such directors;
(iii) With respect to a foreign company covered under these rules,
the CSR Committee shall comprise of at least two persons of
which one person shall be as specified under clause (d) of subsection (1) of section 380 of the Act and another person shall
be nominated by the foreign company.
29
Final Rules on MCA Website..{CONTD.}
CSR Policy:(1) The CSR Policy of the company shall, inter-alia,
include the following, namely:(a) A list of CSR projects or programs which a company
plans to undertake falling within the purview of the
Schedule VII of the Act, specifying modalities of
execution of such project or programs and
implementation schedules for the same; and
(b) Monitoring process of such projects or programs.
30
Final Rules on MCA Website..{CONTD.}
Suggested Template to be Annexed with CSR Policy:S.No.
Name of the
Project
Activities
Geographica
relating to
l Location
(one of the
(District &
ten items of
State)
Schedule VII
in which the
project/prog
ramme falls
or is related
to)
Amount
proposed to
be spent
Details of
Implementa
tion Agency
used (if any)
31
Final Rules on MCA Website..{CONTD.}
Provided that the CSR activities does not include the
activities undertaken in pursuance of normal course of
business of a company.
Provided further that the Board of Directors shall ensure
that activities included by a company in its Corporate
Social Responsibility Policy are related to the activities
included in Schedule VII of the Act.
(2) The CSR Policy of the company shall specify that the
surplus arising out of the CSR Projects or programs or
activities shall not form part of the business profit of a
company.
32
Final Rules on MCA Website..{CONTD.}
CSR Expenditure:
CSR expenditure shall include all expenditure including
contribution to corpus on projects or programs relating
to CSR activities approved by the Board on the
recommendation of its CSR Committee but does not
include any expenditure on an item not in conformity or
not in line with activities which fall within the purview of
the Schedule VII of the Act.
33
Final Rules on MCA Website..{CONTD.}
CSR Reporting:
(1) The Board’s Report of a company covered under these
rules pertaining to a financial year commencing on or
after the 1st April, 2014 shall include an annual report
on CSR containing particulars specified in Annexure;
(2) In case of a foreign company, the balance sheet filed
under sub-clause (b) of sub-section (1) of section 381
shall contain an Annexure regarding report on CSR.
34
Final Rules on MCA Website..{CONTD.}
Display of CSR activities on its website:
The Board of Directors of the company shall, after taking
into account the recommendations of CSR Committee,
approve the CSR Policy for the company and disclose
contents of such policy in its report and the same shall be
displayed on the company’s website, if any, as per the
particulars specified in the Annexure.
35
Reporting on CSR Initiatives
1. A brief outline of the company’s CSR policy including
the overview of projects or programs proposed to be
undertaken and a reference to the web-link of the
CSR Policy and projects or programs.
2. The composition of CSR Committee.
3. Average Net Profit of the company for last 3
financial years.
4. Prescribed CSR Expenditure (2% of the amount as in
item 3 above).
36
Reporting on CSR Initiatives…{CONTD.}
5. Details of CSR spent during the financial year:
 total amount to be spent for the FY;
 amount unspent, if any;
 Manner in which the amount spent during the
financial year is detailed as:
37
Reporting on CSR Initiatives…{CONTD.}
Details of CSR activities/projects undertaken during the year
in the following table : (cont’d)
1.
2.
3.
Sr
CSR
Sector
No
project/activi
which
.
ty identified
project
covered
4.
in Projects/Prog
the rammes
is
1. Local
areas/othe
rs
2. Specify the
state/distri
ct
5.
6.
7.
8.
Amount
Amount
Cumulative
Amount
outlay
spent on
spend upto
spent
(budget)
the
the
Direct or
project/pr
programm
reporting
through
ogramme
e/project
period
impleme
wise
Subheads
nting
1. Direct
agency*
expendit
ure on
projects
2. Over
heads
Total
38
38
* Give details of
Implementing Agency
Reporting on CSR Initiatives…{CONTD.}
6. In case the company has failed to spend the 2% of
Average Net Profit (INR) of last 3 financial years,
please provide the reasons for not spending the
amount in its Board report;
7. A responsibility statement of the CSR Committee,
that the implementation and monitoring of CSR
Policy, is in compliance with CSR Objectives and
Policy of the company.
39
Reporting on CSR Initiatives…{CONTD.}
 Signed
…………………………………………..
 (CEO/Managing Director/Director)
……………………………………
 (Chairman CSR Committee)
……………………………………
 (Person specified under clause (d) of sub-section (1) of section
380 of the Act) (wherever applicable)
40
Clarification to FAQs/Doubts
 For calculation of average Net Profit for the last three years, it needs
to be specified that these years would be specifically 2010-11, 201112, 2012-13. This would be so, because the audited financial reports
for the FY 2013-14 would be available only around April-September
2014.
 For volunteers, the amount of company time / hours spent specifically
on CSR must be quantified in rupee terms. It should be made clear
that the volunteer actually spends time “on duty hours” for CSR and
should not do so during his/her off time.
 The act clearly specifies in Section 135 (1) that a company would fall
under this provision if it has crossed the threshold limit during “any
Financial Year” of its life.
41
Profit Before Tax (PBT)
Profit before tax, also known as PBT, is
a measure of corporate profitability.
A profitability measure that looks at a
company's profits before the company
has to pay corporate income tax. This
measure deducts all expenses from
revenue including operating expenses,
interest expenses and depreciation,
42 .
but it leaves out the payment of tax
Profit After Tax (PAT)

Profit after Tax (PAT) is the net profit
earned
by
the
company
after
deducting all expenses like operating
expenses, interest, depreciation and
tax. PAT can be fully retained by a
company to be used in the business.
Dividends, if declared, are paid to the
shareholders from this residue
43
Net Profit according to Section 198 for the
purpose of Section 135 of New Companies Act,
2013






The followings shall be excluded from the total
revenue:
Profit from premium of shares/Debentures;
Profit from sales of Forfeited shares;
Profit in terms of capital natures (in terms of
undertaking of company or any part of thereof);
Profit from the sale of immovable property/fixed
assets/any capital nature;
Any surplus change in carrying amount of an assets
or liability recognized in equity reserves.
44
Net Profit according to Section 198 for the
purpose of Section 135 of New Companies Act,
2013
Following are allowable as expenditure:





all the usual working charges;
directors’ remuneration;
bonus or commission paid or payable to any member of
the company’s staff, or to any engineer, technician or
person employed or engaged by the company, whether
on a whole-time or on a part-time basis;
any tax notified by the Central Government as being in
the nature of a tax on excess or abnormal profits;
any tax on business profits imposed for special reasons
or in special circumstances and notified by the Central
Government in this behalf.
45
Net Profit according to Section 198 for the
purpose of Section 135 of New Companies Act,
2013
Following are allowable as expenditure:
interest on debentures issued by the company;
 interest on mortgages executed by the company
and on loans and advances secured by a charge on
its fixed or floating assets;
 interest on unsecured loans and advances;
 expenses on repairs, whether to immovable or to
movable property, provided the repairs are not of a
capital nature;
 outgoings inclusive of contributions made under
section 181;
 depreciation to the extent specified in section 123.

46
Net Profit according to Section 198 for the
purpose of Section 135 of New Companies Act,
2013
Following are allowable as expenditure:
 the excess of expenditure over income, which had arisen in
computing the net profits in accordance with this section in
any year which begins at or after the commencement of this
Act, in so far as such excess has not been deducted in any
subsequent year preceding the year in respect of which the net
profits have to be ascertained;
 any compensation or damages to be paid in virtue of any legal
liability including a liability arising from a breach of contract;
 any sum paid by way of insurance against the risk of meeting
any liability such as is referred to in clause (m);
 debts considered bad and written off or adjusted during the
year of account.
47
Net Profit according to Section 198 for the
purpose of Section 135 of New Companies Act,
2013
Following shall not be considered as expenditure:
 Income tax and any other tax on income ;
 Compensation, damages or other payments made
voluntarily;
 Loss of capital natures including loss on sale of
undertaking of company or any part of thereof;
 Any transfer to assets/liabilities revaluation/equity
reserves.
48
Net Profit according to Section 198 for the purpose of Section
135 of New Companies Act, 2013
Particulars
Total Revenue of the company
Less: if following are including in total revenue
1. Profit from premium of shares/Debentures
2. Profit from sales of Forfeited shares
3. Profit in terms of capital natures (in terms of undertaking of company or any part of thereof)
4. Profit from the sale of immovable property/fixed assets/any capital nature
5. Any surplus change in carrying amount of an assets or liability recognized in equity reserves.
Total revenue after extraordinary income
Less: Total Expenditure including Operating Expenses
(i.e. Raw material, wages, stock adjustments, selling and admin expenses)
Operating Profit
Less: Interest
PBDT
Less: Depreciation
Profit before Tax
Add: if following are including in total expenditure
1. Income tax and any other tax
2. Compensation, damages or other payments made voluntarily
3. Loss of capital natures including loss on sale of undertaking of company or any part of thereof
4. Any transfer to assets/liabilities revaluation reserves
Net Profit according to Section 198
46
THE SIZE OF THE CSR SPACE
Around 16,358 companies fall within the
purview of Section 135;
Around 20,000 crores in total, will be
spent by Corporates each year on CSR;
Around 30,000 Directors of Boards will
be directly involved.
50
CSR Companies Data Facts – At a glance
5-10
cr,
182,
1%
1-5 cr, 1186,
7%
50L-1 Cr, 1196,
8%
Private sector CSR Pie
10-20 cr, 79,
1%
20-50 cr, 43,
0%
50+, 25, 0%
Upto 50 Lakh,
13346, 83%
CSR budget
Upto 50 Lakh
50L-1 Cr
1-5 cr
5-10 cr
10-20 cr
20-50 cr
50+
No. of companies
13346
1196
1186
182
79
43
25
51
CSR Companies Data Facts – At a glance
802, 6%
519, 4%
1524, 12%
1-100000
1322,
10%
3653, 27%
1 Lakh-10 Lakh
5526, 41%
10-20 Lakh
20-30 Lakh
30-40 Lakh
40-50 Lakh
Upto 50 Lakh Break-up
No. of Companies
1-100000
1322
1 Lakh-10 Lakh
5526
10-20 Lakh
3653
20-30 Lakh
1524
30-40 Lakh
802
40-50 Lakh
519
52
CSR Companies Data Facts – At a glance
150, 12%
176, 15%
378, 32%
50-60 Lakh
60-70 lakh
70-80 Lakh
202, 17%
290, 24%
80-90 Lakh
90 lakh- 1 Crore
50 Lakh - 1 Crore Break-up
No. of Companies
50-60 Lakh
378
60-70 lakh
290
70-80 Lakh
202
80-90 Lakh
176
90 lakh- 1 Crore
150
53
CSR Companies Data Facts – At a glance
140, 12%
254, 21%
95,
8%
1-2 crore
697, 59%
2-3 crore
3-4 crore
4-5 crore
1-5 Crore Break-up
No. of Companies
1-2 crore
697
2-3 crore
254
3-4 crore
140
4-5 crore
95
54
CSR Companies Data Facts – At a glance
27, 15%
14,
8%
59, 32%
5-6 crore
6-7 crore
38, 21%
7-8 crore
44, 24%
8-9 crore
9-10 crore
5-10 Crore Break-up
No. of Companies
5-6 crore
59
6-7 crore
44
7-8 crore
38
8-9 crore
27
9-10 crore
14
55
CSR Companies Data Facts – At a glance
25, 17%
43, 29%
79, 54%
10-20 crores
20-50 crores
25+ crores
CSR Budget
No. of Companies
10-20 crores
79
20-50 crores
43
25+ crores
25
56
WHAT THE CSR ROLL OUT ENTAILS
» Need for a large number of CSR professionals
(around 30,000 – 16,000 companiesx2);
» Need to create an NGO Hub which will, inter
alia, empanel credible implementing
agencies;
» Need to create a shelf of projects from which
companies and Implementing Agencies may
choose;
57
WHAT CSR ROLL OUT ENTAILS Contd…

Currently there are approx. 3.3 million (33
lakh) regd. NGO’s in India;
 Probably around ten lakh fully functional
- ready to face implementation challenges;
 Average absorptive capacity of NGOs –
around 20 lakhs annually;
 Hence around 1,00,000 NGOs required at
the very least to carry forward CSR agenda.
58
IICA TO TAKE CSR FORWARD
Beginning June 2014, will start world’s
first Professional Course on CSR;
Duration – 9 months; Methodology: Online
First year: 200 candidates – 100 open,
100 sponsored;
Will start registration of NGO’s;
59
IICA TO TAKE CSR FORWARD Contd…
Will create a Shelf of Projects;
For this will invite proposals on an open forum;
Anyone or any institution/body can submit;
Proposals will be evaluated by IICA;
Those considered doable, replicable, scalable, will
be shortlisted,
60
IICA TO TAKE FORWARD CSR Contd…
Will create a comprehensive Data Base of Projects
undertaken and executed;
Will compile all returns filed by companies and
prepare data analytics;
Will assist all initiatives in the training and capacity
development of Company and NGO personnel.
61
IICA TO TAKE CSR FORWARD CONTD…
Creation of an Audit framework;
Creation of the World’s First CSR Index in
collaboration with BSE;
Program Evaluation – where possible by third
parties;
Encouraging Socio-economic Impact Assessment;
Stimulating Professional Documentation;
Assisting in Policy Formulation;
 Orientation Courses for Board Level CSR
Committee Members
62
THANK YOU
63