Corporate Social Responsibility

The article traces the origin of Corporate Social Responsibility in India. The article is also an explanation of few fundamental principles governing Corporate Social Responsibility.

Historical trace of CSR

  • The new concept of Corporate Social Responsibility has been introduced by the Companies Act, 2013.
  • Under the erstwhile Companies Act, there was no concept of Corporate Social Responsibility.
  • The new concept of Corporate Social Responsibility has been introduced under section 135 of the Companies Act, 2013 and Companies (Corporate Social Responsibility) rules, 2014.
  • India is the first country in the world to introduce statutory Corporate Social Responsibility (CSR) through the new Companies Act, 2013. Prior to this landmark development, CSR was not a new concept in India and can be traced with historic pieces of evidence.
  • While doing web search about CSR and CSR policies apparently one feels that lot many things have been done in foreign countries and India has borrowed the concept from the foreign countries. But, the fact is that the concept of CSR has existed in ancient India and our ancient wisdom has framed a platform for CSR and the proud moment is such ancient wisdom has given direction to the corporate houses and industries. Our rich ancient knowledge and tradition is the very basis of modern corporate level CSR practices. The origin of CSR can be traced from our Upanishads, Puranas and Vedic literature like Ramayana, Mahabharata, and Bhagavad-gita.
  • As is common wisdom, Indian companies have been engaged in CSR/charity/philanthropy since time immemorial. Whether it was the factories investing in the communities around them to reduce dependence on a migratory workforce and for having happier families and hence happier employees, or businessmen giving back to their communities or causes near and dear to their hearts, or foundations building places of worship to bring communities together, or a whole host of other methods through which we had corporates giving back to the society in some shape or form. In most instances, these were treated as acts of charity or philanthropy, or the owners giving back to society.

CSR as a strategic philanthropy

  • It was more of a philanthropic exercise and had nothing to do with business. It was more like an institution building exercise like building research and educational institutes. The thinking has now changed, and corporates have started to view CSR as strategic philanthropy linked with responsibility and veering towards community development through various projects. So, the thinking now is that it is no longer a forced philanthropy or tick the box responsibility. It is investing hard capital/resources to serve the society and build a company’s reputation.
  • The change in the thought process is because CSR, though being a responsibility is not compulsory. It is “comply or explain.” it is not they “must do it” but “will do it or explain why we failed to do it.”
  • Corporates are also moving to spend in areas like road safety, pollution control, and slum development. Some corporates have even aligned their CSR spends with the broad objectives of the government in its various social impact schemes like “Skill India,” “Swatch Bharat.” Some have spent through the Prime Minister Relief Fund. The question one may ask is why only in these areas and say why not in areas like arts and culture or conservation of animals which are getting extinct, conservation of national heritage or say development of rural sports or sports which are dying or say building new technologies for the benefit of the poor. The answer to this is that there is a need to spend on the traditional areas as it tends to be beneficial to the larger group/community.
  • The larger organizations, some of whom assumed global stature, created their own foundations that were used to by the founders as vehicles for causes they wanted to be a champion. Other corporates also spent money for the upliftment of localities they operated in or for communities they came from.
  • Companies that traditionally undertook CSR anyway, with or without the law, used this opportunity to streamline the investments they made in this regard. For these firms, this was a chance to re-review and re-strategise what they had already been doing in order to fit into the requirements of the law.

Provisions of corporate social responsibility under Companies Act, 2013 and rules made thereunder

Applicability of Corporate Social Responsibility

According to section 135 of the Companies Act, 2013 below mentioned companies shall constitute a corporate social responsibility committee of the board

  • Having net worth of rupees five hundred crores or more;


  • Turnover of rupees one thousand crores or more;


Download Now
  • A net profit of rupees five crores or more;

It is applicable to every company including its holding company, subsidiary company, foreign company including its branch office or project office in India.


Any company which ceases to be a company covered as per criteria mentioned under sub-section (1) of section 135 of the Companies Act, 2013 as mentioned above for three consecutive financial years shall not be required to –

  • Constitute a CSR committee, and
  • Comply with the provisions contained in sub-section (2) to (5) of the Companies Act, 2013 till such time it meets the criteria specified in sub-section (1) of section 135.

The composition of Corporate Social Responsibility Committee, meetings of committee and functions of committee

  • Corporate Social Responsibility Committee shall consist of three or more directors, out of which at least one director shall be an independent director, in case of companies where independent director is mandatory to appoint.

Private company with only two directors

In the case of private companies where only two directors are required to be appointed above requirement can be disposed of and they need not appoint an independent director.

Constitution of CSR committee in case of foreign company

In case of foreign companies, Corporate Social Responsibility Committee shall comprise of at least two persons of which one person shall be residing in India and appointed as authorized signatory by the foreign company.

  • The Corporate Social Responsibility committee shall institute a transparent monitoring mechanism for implementation of the projects or programs or activities undertaken by the company.

Function to be performed by CSR committee of any company

  1. They shall formulate and recommend to the board of directors of the company, a Corporate Social Responsibility policy which shall indicate the activities to be undertaken by the company as specified and it shall be within the purview of Schedule VII of the Companies Act, 2013;
  2. They shall recommend the amount of expenditure to be incurred on the activities referred to them and;
  3. They shall monitor the Corporate Social Responsibility policy of the company as may be required from time to time.

Functions of the board of directors of the company

  • The board of directors of the company performs the following functions in relation to Corporate Social Responsibility
  1. They shall after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility policy for the company.
  2. They shall disclose the contents of Corporate Social Responsibility policy in the board of director’s report which forms the part of an annual report of the company.
  3. They shall take care that Corporate Social Responsibility policy of the company shall be placed on the website of the company if any and also it shall be updated on the website of the company as and when any changes are made.
  4. They shall ensure that the activities which are included in Corporate Social Responsibility policy of the company are undertaken by the company and not only they shall be on paper.

Quantum of CSR expenditure

  • Every company which triggers the limits of section 135 shall spend in every financial year, at least two percent of the average net profits of the company made during the three immediately preceding financial years.
  • Average net profits of the company shall be calculated as per the provisions of section 198 of the Companies Act, 2013.
  • If the company fails to spend the amount earmarked as CSR expenditure then the company needs to explain the reason behind not spending on the board of directors report.
  • Till now no penalty had been prescribed under the Companies Act, 2013 and rules made thereunder regarding non-compliance of section 134 or for not spending the prescribed amount. But it has been noted after passing of the first financial year 2014-15 that many of the companies covered under the purview of CSR who failed to spend the amount were served with the notices by the respective registrar of companies and they were asked for an explanation for not spending the amount along with documentary evidence. Further, they may impose a penalty if deemed fit by them.
  • 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 381and Section 198 of the act.

CSR activities

  • Every company shall give preference to the local areas and areas where they operate for spending the amount earmarked for Corporate Social Responsibility activities.
  • The CSR activities shall be undertaken by the company, as per its CSR policy, as projects or programs or activities (either new or ongoing), excluding activities undertaken in pursuance of its normal course of business.

The board of directors of the company may decide to undertake its CSR activities approved by the CSR committee of the company by any of the below-mentioned ways,

  1. Through a registered trust or;
  2. A registered society or a section 8 company established under Companies Act, 2013 either singly or along with its holding or subsidiary or associate company, or along with any other company or holding or subsidiary or associate company of such other company;
  • But if such trust, society or company is  not established by the company, either singly or along with its holding or subsidiary or associate company, or along with any other company, or holding or subsidiary or associate company of such other company it shall have an established track record of three years in undertaking similar programs or projects.
  • Every company has to specify the projects or programs to be undertaken through any of the above-mentioned entities, the modalities of utilization of funds on such projects and programs and the monitoring and reporting mechanism.
  • Every company may also collaborate with other companies for undertaking projects or programs or Corporate Social Responsibility activities in such a manner that the CSR committees of the companies are in a position to report separately on such projects or programs.
  • According to sub-section (5) of Section 135of the Act, the Corporate Social Responsibility projects or programs or activities undertaken in India only shall amount to Corporate Social Responsibility expenditure.
  • The Corporate Social Responsibility projects or programs or activities shall not benefit only the employees of the company and their families shall not be considered as Corporate Social Responsibility activities. It means that employees can form part of the project or program or activities but any project or program of activity cannot be exclusively held for the benefit of employees and its families.
  • Any company 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 including expenditure on administrative overheads shall not exceed five percent of total corporate social responsibility expenditure of the company in one financial year.
  • If any company contributes any amount directly or indirectly to any political party then it shall not be considered as Corporate Social Responsibility activity.

CSR policy

Every company shall form the CSR policy of the company and it shall include the following things in it namely:-

  • A list of CSR projects or programs which a company plans to undertake falling within the purview of the schedule vii of the Companies Act, 2013 specifying modalities of execution of projects or programs and implementation schedules for the projects or programs; and
  • Monitoring process of projects or programs,
  • The CSR activities or projects or programs shall not include the activities undertaken by the company in pursuance of its normal course of business.
  • The board of directors of the company shall ensure that activities or projects or programs included by a company in its Corporate Social Responsibility policy are related to the activities included in schedule vii of the Companies Act, 2013.
  • The CSR policy of the company shall clearly specify that any surplus arising out of the CSR projects or programs or activities shall not form part of the business profit of a company.

Core elements of the CSR policy shall include the following

  • Care for all stakeholders
  • Ethical functioning
  • Respect for workers’ rights and welfare
  • Respect for human rights
  • Respect for environment
  • Activities for social and inclusive development

Corporate Social Responsibility expenditure

Corporate Social Responsibility expenditure shall include all expenditure including contribution to corpus, or on projects or programs relating to CSR activities approved by the board of directors of company on the recommendation of its Corporate Social Responsibility committee, but it shall not include any expenditure on an item not in conformity or not in line with activities or programs or projects which fall within the purview of Schedule VII of the Companies Act, 2013.

Yearly annual compliances/disclosure

  • The board report shall include an annual report on CSR in the format as prescribed in the Companies (Corporate Social Responsibility Policy) Rules, 2014, which contains particulars as mentioned under.
  1. A brief outline of the company’s Corporate Social Responsibility Committee policy, including an overview of projects or programs or activities, proposed to be undertaken and a reference to the web-link to the CSR policy and projects or programs or activities.
  2. The composition of CSR committee.
  3. Average net profit of the company for last three financial years.
  4. Prescribed CSR expenditure for the financial year.
  5. Details of CSR spent during the financial year:
  6. Total amount to be spent for the financial year;
  7. Amount unspent, if any;
  8. CSR project or program or activity identified by the company;
  9. Sector in which the project or program or activity is covered;
  10. Name of state in which project or program or activity is undertaken whether it is local area or other areas;
  11. Budget project or program or activity wise;
  12. Direct and indirect expenditure on projects or programs or activities;
  13. Cumulative expenditure upto the reporting period. For companies carrying projects or programs or activities for a period of more than one year or more cumulative expenditure needs to be mentioned upto the reporting period.
  14. Whether the amount is spent directly or through any implementing agency or through collaboration with any other company.
  • The company which has failed to spend 02% of the average net profits of the company of the last three financial years they need to disclose the reason for not spending such amount.
  • It shall also contain the responsibility statement of the CSR committee that the implementation of CSR policy is in compliance with CSR objectives CSR policy of the company.
  • It shall be signed by the chairman of the CSR committee, chief executive officer or managing director of any director of the company. In case of foreign company, it shall be signed by the authorized representative of the company.

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 of the company and they shall display the CSR policy of the company on its website if any and shall update the CSR policy of the company as and when it is amended.

  • In March, this year Shri Arun Jaitley has said as many as 460 companies have disclosed spending of INR 6337.36 crores towards CSR activities during 2014-2015.

Accounting treatment of expenses incurred on CSR activities

  • Accounting treatment usually differs with route which the company adopts for CSR activities. Depending upon the policy, accounting treatment is given in the books of accounts of the company.

Various accounting treatment is as follow:-

  1. Expenses incurred by the company itself
  • Under this situation, the first classification is required to be made in relation to whether it is revenue or capital expenditure. When expenditure does not give rise to an asset it would be treated as revenue expenditure which is a charge against profit of the company and when an asset is generated i.e., when the company has controlling power and derives future economic benefits out of that asset, it would be treated as capital expenditure in the books of accounts.
  1. Expenses incurred by the company through trust, NGOs
  • Under this situation, amount spent on CSR activities would be treated as expense and charged to profit and loss account.
  1. Expenses in relation to supply of goods manufactured by the company
  • Where the company supplies the goods manufactured by it or renders the services as CSR activities, treatment in the books of account shall be provided when the control of goods is transferred. Manufactured goods shall be valued at cost or market price whichever is lower as per as-2 and services to be valued at cost.

Tax benefits

  • No specific tax exemptions have been extended to CSR expenditure per se. While no specific tax exemption has been extended to expenditure incurred on CSR, spending on several activities like contributions to Prime Minister’s Relief Fund, scientific research, rural development projects, skill development projects, agricultural extension projects, etc. Which find place in Schedule VII, already enjoy exemptions under different sections of the income tax act, 1961.

Schedule VII of the Companies Act, 2013

Following are the activities or programs or projects which may be included by the companies in their Corporate Social Responsibility policies relating to:—

  1. Eradicating hunger, poverty, and malnutrition, promoting health care including preventive health care and sanitation including contribution to the Swach Bharat Kosh set-up by the central government for the promotion of sanitation and making available safe drinking water;
  2. Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects;
  3. 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;
  4. 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 the central government for rejuvenation of river Ganga;
  5. Protection of national heritage, art, and culture including restoration of buildings and sites of historical importance and works of art; Setting up public libraries; Promotion and development of traditional art and handicrafts;
  6. Measures for the benefit of armed forces veterans, war widows, and their dependents;
  7. Training to promote rural sports, nationally recognised sports, Paralympic sports and Olympic sports;
  8. Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the central government for socio-economic development and relief and welfare of the schedule caste, tribes, other backward classes, minorities, and women;
  9. Contributions or funds provided to technology incubators located within academic institutions which are approved by the central government;
  10. Rural development projects;
  11. Slum area development.
  • CSR has gone through many phases in India. The ability to make a significant difference in the society and improve the overall quality of life has clearly been proven by the corporates. Not one but all corporates should try and bring about a change in the current social situation in India in order to have an effective and lasting solution to the social woes.
  • So according to the above study Corporate Social Responsibility is not mandatory for every company but the company’s which are covered under the ambit of Section 135 of the Companies Act, 2013 are only required to spend 2 % of average net profits earned for last three financial years.

Hope the article elucidated our viewers on the subject of Corporate Social Responsibilities.



Please enter your comment!
Please enter your name here