CSR- Commitment towards social good

CSR is the process by which an organization thinks about and evolves its relationships with stakeholders for the common good, and demonstrates its commitment in this regard by adoption of appropriate business processes and strategies. Thus CSR is not charity or mere donations CSR is a way of conducting business, by which corporate entities visibly contribute to the social good.

With CSR to be a compulsory compliance for a prescribed set of companies, India has become the first country in the whole world to make it mandatory for the corporate. CSR should not be taken as an obligation but a social responsibility which should be fulfilled strategically, systematically and thoughtfully.

Let’s discuss some of the provisions of CSR:

As per section 135 and the Companies (Corporate Social Responsibility) Rules, 2014 of Companies Act, 2013:

1. Applicable to all companies incorporated in India and having :

a. Net profit of INR 5 Crore or more

b. Turnover of INR 1000 Crore or more

c. Net worth of INR 500 Crore or more, During any financial year require to constitute CSR committee.

*My view: According to me the limit of “5 Crore or more” is very less because even a small scale company is able to make such a profit and for a company making a few numbers more than 5 crores say 6.5 crore and an average of let’s say 6 crore for the previous 3 financial years, it is hard to spend 2% on CSR activities. Spending 12 lacs in CSR activities in just an year is just like throbbing someone’s head with a hammer and it seems so compulsory to throb that hammer.

Infact this is the reason the owners of Private Companies are looking at this NCA as a challenge to their business. Increased number of compliances has increased the lines of their foreheads and I am afraid that could lead to increased professionals who will serch for loopholes than the professionals actually complying with the law with true letter and spirit.

As mentioned in my previous article:

http://www.caclubindia.com/articles/details.asp?mod_id=22039#.VFmj8TSUeao

that at times we adopt a different roadmap to attain a given goal and I am afraid that the different roadmap would be not revealing the true numbers in the balance sheet just to save the company from getting hit from the hammer of NCA. 

On the other hand provisions like CSR are likely to teach the SMEs to be more law compliant and to learn the laws quickly which were previously been skipped from them as they had relaxations and moreover ways to find loopholes. I am quite satisfied with the new NCA in this context.

2. CSR spending = 2% of the average Net Profits made by the company during   every block of three years

Net Profit’ for the section 135 and these rules shall mean net profit before tax as per books of accounts and shall not include profits arising from branches outside India.

3. Steps to be followed:

Step1: Formation of CSR Committee comprising two directors (in case of Private Company)

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; (Schedule VII is mentioned below)

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.    

Step2. Approval of the CSR committee and the policy made at the board meeting.

4. Activities as per Schedule VII which may be included by companies in their Corporate Social Responsibility Policies:—

i. Eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation and making available safe drinking water including contribution towards “Swacch Bharat Kosh” set up by the central government for the promotion of sanitation.

ii. Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects;

iii. promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centers and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups;

iv. ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water including contribution to the “Clean Ganga Fund” set up by Central Government for rejuvenation of river Ganga;

v. protection of national heritage, alt and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional arts and handicrafts:

vi. measures for the benefit of armed forces veterans, war widows and their dependents;

vii. Training to promote rural sports, nationally recognized sports, paralympic sports and Olympic sports;

viii. Contribution to the P me Minister's National Relief Fund or any other fund s€t up by the Central Government for socio-economic development and relief and welfare of the Scheduled Caste & the Scheduled Tribes, other backward classes, minorities and women;

ix. contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Movement

x. Rural development projects.", minorities and women; and

xi. Slum Area Development and such other activities as may be prescribed by the Ministry from time to time.

5. How to contribute

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 under section 8 of the Act by the company or its holding or subsidiary or associate company or otherwise;

- May 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.

6.  What would not be CSR

a. CSR programs not undertaken in India.

b. Activities that would benefit employees only

c. Contribution of any amount directly or indirectly to any political party.

d.Expenditure in the normal course of business.

Thus, although on a social note CSR is a good initiative but to me the threshold limit of 5 crore or more was quite surprising but if the intention was to bring SMEs into the threshold limit and making them follow the new rule than hats off to the NCA. Nevertheless the corporate have welcomed CSR with open hearts and the term corporate sustainability has really been given emphasis just spending for the sake of philanthropy and social cause.

Finance minister Arun Jaitley on Tuesday said companies are expected to pump in as much as Rs 14,000 crore for Corporate Social Responsibility (CSR) activities in 2014-15 and the amount will be increasing in subsequent years.