CSR Legislations Around The

World
 CSR Legislations Around The World

 The United Nations Industrial Development Organization defines

corporate social responsibility as “a management concept whereby
companies integrate social and environmental concerns in their
business operations and interactions with their stakeholders.”
CSR Legislations Around The World - Obligations

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 CSR Legislations Around The World

CSR Legislations around the world focus on these areas in

the same order of priority

• Economic Responsibility - Profitability, Exports Growth ,

Job Creation
• Legal Responsibility - Compliance with Laws, Risk
Management
• Ethical Responsibility – Fair Practices, Avoid Abusing
Threatening Customer
• Philanthropic Responsibility - Voluntary Donation to the
Community, Environmental Protection

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 CSR Legislations Around The World

While CSR Involves focus on Risk Management,

Sustainability, Environment, Compliance in
Developed Countries, In India, CSR involves
compulsory contribution of a definite sum towards
Philanthropic Activity.

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 Companies Act2013
Section135
 Section135 - Evolution

The Corporate Social Responsibility Voluntary Guidelines

2009 proposed that CSR initiatives of Indian companies
should become integral part of their overall business policy.
The Guidelines set out six core elements
• 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

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 Section135 - Evolution
The National Voluntary Guidelines on Social, Environmental
and Economic Responsibilities of Business 2011 refined the
2009 act by setting out 9 Principles to encourage responsible
business behaviour
• Businesses should conduct and govern themselves with ethics,
transparency and accountability
• Businesses should provide goods and services that are safe and
contribute to sustainability throughout their life cycle
• Businesses should promote the wellbeing of all employees
• Businesses should respect the interests of, and be responsive
towards all stakeholders, especially those who are disadvantaged,
vulnerable and marginalised
• Businesses should respect and promote human rights
• Businesses should respect, protect, and make efforts to restore the
environment
• Businesses, when engaged in influencing public and regulatory policy,
should do so in a responsible manner
• Businesses should support inclusive growth and equitable
development
• Businesses should engage with and provide value to their customers
and consumers in a responsible manner

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 Section135 - Evolution

While the 2009 and 2011 laws were only guidelines, Section
135 of Companies Act 2013 quantified the Corporate Social
Responsibility in terms of the Percentage of Net
Profit/Revenue of an organization that should be contributed
towards Philanthropic Activity

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 Section135 - Applicability

Section 135 applicable to Companies with

• Net worth Rs. 500 crore or more,

• Turnover Rs 1000 Crore or more or
• Net Profit Rs. 5 Crore or more during any financial
year

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 Section135 - Directors Appointment

• At least 3 directors, one of whom should be

an independent director
• In a company where appointment of an
independent director is not mandatory
• CSR committee of a private company
having only two directors can have only two
members
• CSR committee would be a committee of the
board

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 Section135 - Directors Appointment

• CSR committee of a foreign company shall have

at least 2 members, one of whom should be
person resident in India, authorized to receive
documents, notice etc {380(1)(d)}

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Section135 - CSR Committee Duties

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 Section135 - CSR Committee Duties

• Recommend the CSR policy

• Recommend the amount of expenditure
• Monitor CSR policy
• Institute transparent monitoring mechanism
• Responsibility Statement to be submitted along with
Annual Report
• Chairman CSR Committee to sign the Annual Report

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 Section135 - CSR Committee Duties
15

• CSR Committee to recommend the policy

• CSR committee to recommend the amount of
expenditure
• CSR committee to monitor the policy
• CSR committee to institute monitoring mechanism
 Section135 - Board Duties
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• Board to approve the CSR policy

• Board to ensure implementation
• Contents of the policy to be disclosed in the Board’s
Report and to be displayed on the company web
site
Section135 - CSR Implementation Flow Chart
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 Section135 - Policy Content
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• CSR Policy Shall indicate the activities to be

undertaken by the company specified in schedule
VII
• Activities in CSR Policy to relate to Sch VII
• CSR policy to specify that the surplus of the CSR
projects shall not form part of business profit
 Section135 - Fund Allocation 19

• At least 2% of average net profit of

preceding 3 financial years in every
financial year
• Average Net Profit shall be calculated as per
Section 198 of Companies Act 2013 and
considers Profit Before Taxes
• It shall not include the net profit of an
overseas branch or branches, whether
operated as separate company or
otherwise
 20

Section 135 – Net Profit

Calculation
 Section135 - Net Profit Calculation 21

• It shall not include dividend received form such other

companies in India, which are covered under Section
135 and complying with the applicable provisions
• In case Net profit calculated as per CA 1956, no
need to recalculate
• Net profit of a foreign company shall be as per Section
381 read with section 198
 Section198 - Net Profit Calculation 22

Net Profit for CSR after adding Permissible Credits and

Non Permissible deductions and deducting Non
Permissible Credits and Permissible Deductions from Net
Profit After Tax.

• Permissible Credits
• Bounties and subsidies received from any Government
• Non Permissible Credits
• Profits, by way of premium on shares or debentures of the company
• Profits on sales by the company of forfeited shares
• Profits from the sale of any immovable property or fixed assets
• Change in carrying amount of an asset or of a liability recognised in equity
reserves including surplus in profit and loss account on measurement of
the asset or the liability at fair value.
 Section198 - Net Profit Calculation 23
• Permissible Deductions
• All the usual Working Charges
• Director’s Remuneration
• Bonus or Commission paid to Staff
• Tax on excess or abnormal profits
• Tax on business profits imposed for special reasons
• Interest on Debentures
• Interest on Loans
• Expenses on repairs ( other than Capital Expenditure )
• Contributions made under section 181 ( Bonafide Charitable Trusts )
• Legal liability for compensation or damages
• Insurance Expenses
 Section198 - Net Profit Calculation 24
• Non Permissible Deductions
• income-tax and super-tax payable by the company under the Income-tax
Act, 1961
• any compensation, damages or payments made voluntarily
• loss of a capital nature including loss on sale of the undertaking or any of
the undertakings of the company or of any part thereof not including any
excess of the written-down value of any asset which is sold, discarded,
demolished or destroyed over its sale proceeds or its scrap value;
• any change in carrying amount of an asset or of a liability recognised in
equity reserves including surplus in profit and loss account on
measurement of the asset or the liability at fair value.
 Section135 – Non Qualifying Expenditure 25

• One of events, such as marathons,

awards, charitable contributions,
advertisements, sponsorships at TV etc.
• Statutory payments
• Normal course of business
• Activities benefitting Employees directly
 Section135 – Non Qualifying Expenditure 26

• Direct/indirect contribution to political

parties under sec 182
• CSR activities out side India
 Section135 – Approved Entities 27

To be considered as CSR activity, the activity has to be

undertaken by
• Registered Trust
• Registered Society
• Company set up by the company
• Company set up by holding/subsidiary
• Collaborative CSR projects with other companies, so
that the respective CSR committees are able to
separately report
 Section135 – Approved Entities 28

• Expenditure by Foreign holding co – in India – routed

through Indian subsidiary – Indian subsidiary is
covered by sec 135
• Contribution to corpus of trust / society / sec 8 company
– formed exclusively for CSR activities – corpus for
activity under schedule VII
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Schedule VII – Qualifying

CSR Activities
Schedule VII – List of Appproved CSR Activities
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