Corporate Social Responsibility (CSR) is a mandatory obligation for specified companies under Section 135 of the Companies Act, 2013. The company must spend at least 2% of its average net profits on CSR activities.
The applicability
CSR applies to a company that, in the immediately preceding financial year, has:
- A net worth of ₹500 crore or more
- A turnover of ₹1,000 crore or more
- A net profit of ₹5 crore or more
A company that meets any one of these thresholds must comply with CSR.
The committee
The company must constitute a CSR committee with at least three directors, including at least one independent director. The committee formulates the CSR policy, recommends the CSR activities and monitors the spend.
The spend
The company must spend at least 2% of its average net profits of the three immediately preceding financial years on CSR activities. The CSR activities must be in the areas specified in Schedule VII.
The unspent amount
If the company does not spend the entire amount, it must transfer the unspent amount to a separate account called the Unspent CSR Account, within 30 days of the end of the financial year. The amount must be spent within three years. If the amount is not spent within three years, it must be transferred to a fund specified in Schedule VII.
The practical points
The company should compute the average net profits and the 2% obligation. It should constitute the CSR committee and frame the CSR policy. It should spend the amount on the specified activities and maintain the records. The company should disclose the CSR spend in the board's report.
Call to Action: We advise companies on CSR applicability, committee and spend compliance. For a CSR review, contact office@anujdesaiassociates.com, Ph No. 9619456656, Website https://anujdesaiassociates.com, LinkedIn linkedin.com/in/ca-anuj-desai-122547230.