CSR – Corporate Social Responsibility: A Complete Guide

Companies in India have to do something called Corporate Social Responsibility. This means they have some statutory obligations towards the people and the planet. They have to make sure they are doing things in ethical way and helping people at the same time.

Meaning and Concept of CSR

Corporate Social Responsibility is when a company helps society. It is not about making money. Companies do things that help people and the earth.

Corporate Social Responsibility is, about giving back to society and making sure everyone is doing well. Companies that do Corporate Social Responsibility want to make sure they are helping people and doing things that’re good for everyone.

Legal Framework of CSR in India

CSR is governed by:

Section 135 of the Companies Act, 2013
Companies (CSR Policy) Rules, 2014 (amended from time to time)

India is the first country to legally mandate CSR spending.

Applicability of CSR Provisions

CSR provisions apply if a company meets any of the following criteria in the preceding financial year:

Net worth ≥ ₹500 crore
Turnover ≥ ₹1000 crore
Net profit ≥ ₹5 crore

Once applicable, CSR provisions continue for 3 years even if thresholds are not met subsequently.

Calculation of Net Profit for CSR

Net profit is calculated as per Section 198 of the Companies Act, 2013
Excludes:
- Profits from overseas branches
- Dividends received from other CSR-compliant companies
Average net profit of last 3 financial years is considered

CSR Committee – Composition, Roles & Functions

Composition

Minimum 3 directors (including 1 independent director)
Private companies (without independent director) can have 2 directors
Foreign companies must have at least 2 persons

Roles & Functions

Formulate CSR Policy
Recommend CSR expenditure
Identify and approve CSR projects
Monitor implementation and utilization of funds
Ensure compliance with CSR provisions

CSR Policy – Key Components

A CSR Policy must include:

List of approved CSR projects
Modalities of execution
Monitoring mechanism
Annual action plan
Treatment of surplus arising out of CSR

CSR Activities under Schedule VII

CSR activities must align with Schedule VII, which includes:

Eradicating hunger & poverty – food distribution, healthcare support
Promoting education – schools, scholarships, digital learning
Gender equality & women empowerment
Environmental sustainability – afforestation, renewable energy
Protection of national heritage & culture
Rural development & slum area development
Disaster management & relief funds

Modes of Undertaking CSR Activities

Companies can implement CSR through:

Direct implementation
Registered trusts, societies, or Section 8 companies
Collaboration with other companies
Government-approved funds

CSR Spending Requirements

Minimum 2% of average net profits of last 3 years
Administrative overheads capped at 5% of CSR expenditure
Surplus from CSR activities must not form part of business profits

Treatment of Unspent CSR Amount

(a) Ongoing Projects

Transfer to Unspent CSR Account within 30 days
Utilise within 3 financial years
If not utilised → transfer to Schedule VII Fund

(b) Other than Ongoing Projects

Transfer to specified funds within 6 months of financial year end

Ongoing Projects

Multi-year CSR projects (maximum 3 years excluding year of commencement)
Must be approved by Board
Require continuous monitoring and reporting

CSR Reporting and Disclosure

Companies must:

Include CSR report in Board’s Report
Disclose composition of CSR Committee
Provide details of CSR spent and unspent
Upload CSR policy on website

CSR Audit & Impact Assessment

Impact assessment mandatory for companies with CSR obligation ≥ ₹10 crore (in certain cases)
Conducted by independent agencies
Helps evaluate effectiveness of CSR projects

Penalties for Non-Compliance

Company penalty: Twice the unspent amount or ₹1 crore (whichever is less)
Officer penalty: 1/10th of unspent amount or ₹2 lakh (whichever is less)

Practical Challenges in CSR Implementation

Identifying genuine projects
Monitoring fund utilization
Measuring social impact
Regulatory compliance burden

Best Practices for Effective CSR

Align CSR with business strategy
Focus on long-term projects
Ensure transparency and reporting
Partner with credible NGOs
Conduct periodic impact assessments

Conclusion

Doing good for the community is now a law that companies in India have to follow. When companies do Corporate Social Responsibility effectively it makes a difference to the people and also makes the company look good, to everyone including the people who own a part of the company and the people who work with the company.