Sections of Text

Companies Act,
2013
Section 135 (1) Every company having net worth of rupees five hundred crore or
more, or turnover of rupees one thousand crore or more or a net
profit of rupees five crore or more during immediately
preceding financial year shall constitute a Corporate Social
Responsibility Committee of the Board consisting of three or
more directors, out of which at least one director shall be an
independent
director.

Proviso to Provided that where a company is not required to

Section 135 (1) appoint an independent director under sub- section (4) of
section 149, it shall have in its Corporate Social Responsibility
Committee two or more directors.

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Section 135 (2) The Board's report under sub-section
(3) of section 134 shall disclose the composition of the Corporate
Social Responsibility Committee.

Section 135 (3) The Corporate Social Responsibility

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 in areas or
subject, specified in
Schedule VII;
(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.

Section 135 (4) The Board of every company

referred to in sub-section (1) shall,—
a) after taking into account the recommendations made by the
Corporate Social Responsibility Committee,
approve the Corporate Social Responsibility Policy for the
company and disclose
contents of such Policy in its

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 report and also place it on the company's website, if any,
in such manner as may be
prescribed; and

b) ensure that the activities as are included in Corporate

Social Responsibility Policy of the company are
undertaken by
the company.
Section 135 (5) The Board of every company referred to in sub-section (1),
shall ensure that the company spends, in every financial
year, at least two per cent of the average net profits of the
company made during the three immediately preceding
financial years, in pursuance of its Corporate
Social Responsibility Policy:
1st Proviso to Provided that the company shall give preference to the local
Section 135 (5) area and areas around it where it operates, for spending the
amount earmarked for Corporate Social Responsibility
activities:

2nd Proviso to Provided further that, if the company fails to spend such
Section 135 (5) amount, the Board shall, in its report made under clause (o) of
sub-section (3) of section 134, specify the reasons for not
spending the amount.

Explanation For the purposes of this section "net profit" shall not include
such sums as

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may be prescribed, and shall be
calculated in accordance with the provisions of section 198.

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Activities covered in Schedule VII of the Act and Amendments made thereunder

No. of Activity Activities

(i) Eradicating hunger, poverty and malnutrition; promoting
health care including preventive health care and sanitation
including contribution to the ‘Swachh Bharat Kosh’ set-up
by the Central Government for the promotion of sanitation
and making available
safe drinking water;
(ii) Promoting education, including special education and
employment enhancing vocational skills especially among
children, women, elderly, and the differently abled and
livelihood enhancement projects;

(iii) promoting gender equality and 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,
agro forestry, conservation of natural resources

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 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;
(v) Protection of national heritage, art and culture including
restoration of building 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 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
Scheduled Castes, 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 Government;

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(x) Rural development projects.
(xi) Slum area development.
Explanation- For the purpose of this item, the term
‘slum area’ shall mean any area declared as such by the
Central Government or any State Government or any
other competent authority under any
law for the time being in force.

**********

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The Companies (Corporate Social Responsibility Policy) Rules, 2014 notified on 27 -
02-2014 (inclusive of all amendments).

G.S.R. 129(E). - In exercise of the powers conferred under section 135 and sub-sections
(1) and (2) of section 469 of the Companies Act, 2013 (18 of 2013), the Central
Government hereby makes the following rules, namely

Rule No. Rules

1. Short title and These rules may be called the Companies (Corporate
commencement Social Responsibility Policy) Rules, 2014 (2) They shall
come into force on the 1st day of April, 2014.

2. Definitions (l) In these rules, unless the context otherwise requires, -

(a) "Act" means the Companies Act, 2013;

(b) "Annexure" means the

Annexure appended to these rules;
(c) "Corporate Social Responsibility (CSR)"
means and
includes but is not limited to :-
(i) Projects or programs relating to activities areas or
subjects specified in Schedule VII to the
Act; or

(ii) Projects or programs relating to activities undertaken

by the board of directors of a company (Board) in
pursuance of recommendations of the Committee of the
Board as per declared CSR Policy of the
company subject to the

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 condition that such policy will include activities,
areas or subjects specified in Schedule
VII of the Act.

(d) "CSR Committee" means the Corporate Social

Responsibility Committee of the Board referred to
in section 135 of the Act.

(e) "CSR Policy" relates to the activities to be undertaken by

the company in areas or subjects specified in Schedule VII to
the Act and the expenditure thereon, excluding activities
undertaken in pursuance of normal course of
business of a company;

(f) "Net profit" means the net profit of a company as per its
financial statement prepared in accordance with the
applicable provisions of the Act, but shall not
include the following, namely :-

(i) any profit arising from any overseas branch or branches

of the company, whether operated as a separate
company or
otherwise; and

(ii) any dividend received from other companies in India,

which are covered under and complying with the
provisions
of section 135 of the Act:

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1st proviso to Provided that net profit in respect of a financial year for
definition of Net which the relevant financial statements were prepared in
profit accordance with the provisions of the Companies Act,
1956, (1 of 1956) shall not be required to be re-
calculated in accordance with the provisions of
the Act:

2nd proviso to Provided further that in case of a foreign company

definition of Net covered under these rules, net profit means the net profit
profit of such company as per profit and loss account prepared
in terms of clause (a) of sub-section
(l) of section 381 read with section 198 of the Act.
(2) Words and expressions used and not defined in
these rules but defined in the Act shall have the same
meanings respectively
assigned to them in the Act.

3. (1) Corporate Every company including its holding or subsidiary, and

Social a foreign company defined under clause (42) of section
Responsibility. 2 of the Act having its branch office or project office in
India which fulfills the criteria specified in sub-section
(l) of section 135 of the Act shall
comply with the provisions of

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 section 135 of the Act and these
rules:
Proviso to Rule Provided that net worth, turnover or net profit of a foreign
3 (1) 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 381 and
section 198 of the Act.

Rule 3 (2) Every company which ceases to be a company covered

under sub- section (1) of section 135 of the Act for three
consecutive financial
years shall not be required to -

(a) constitute a CSR Committee;

and
(b) comply with the provisions contained in sub-section
(2) to (5) of
the said section,
till such time it meets the criteria specified in sub-
section (1) of section 135.

4. (1) CSR The CSR activities shall be undertaken by the company, as

ctivities.- per its stated CSR Policy, as projects or programs or
activities (either new or ongoing), excluding activities
undertaken in pursuance of its
normal course of business.

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Rule 4 (2) The Board of a company may decide to undertake its
CSR activities approved by the CSR
Committee, through -

(a) a company established under Section 8 of the Act or a

registered trust or a registered society, established by the
company, either singly or along with any other
company, or

(b) a company established under Section 8 of the Act or a

registered trust or a registered society, established by the
Central Government or State Government or any entity
established under on Act of Parliament or State
legislature :

Proviso to rule 4 Provided that if, the Board of a company decides to

(2) undertake its CSR activities through a company
established under Section 8 of the Act or a registered trust
or a registered society, other than those specified in this
sub-rule, such company or trust or society shall have an
established track record of three years in undertaking
similar programs or projects; and the company has
specified the projects or programs to be undertaken, the
modalities of utilization of funds of

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 such projects and programs and the
monitoring and reporting mechanism.

Rule 4 (3) A company may also 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.

Rule 4 (4) Subject to provisions of sub-section

(5) of section l35 of the Act, the CSR projects or
programs or activities undertaken in India only
shall amount to CSR Expenditure.

Rule 4 (5) The CSR projects or programs or activities that benefit

only the employees of the company and their families
shall not be considered as CSR activities in accordance
with section 135 of the
Act.

Rule 4 (6) Companies 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

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 not exceed five percent of total CSR
expenditure of the company in one financial year.

Rule 4 (7) Contribution of any amount directly or indirectly to

any political party under section 182 of the Act, shall
not be considered as
CSR activity.

5. (1) CSR The companies mentioned in the

Committees rule 3 shall constitute CSR Committee as
under.-
(i) a company covered under sub- section (1) of
section 135 which is not required to appoint an
independent director pursuant to sub-section (4)
of section 149 of the Act, shall have its CSR
Committee without such
director;

(ii) a private company having only two directors on

its Board shall constitute its CSR Committee
with two such directors;

(iii) with respect to a foreign company covered

under these rules, the CSR Committee shall
comprise of at least two persons of which one
person shall be as specified under clause (d) of
sub-section (1) of section 380 of the Act and
another person shall be

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 nominated by the foreign
company.
Rule 5 (2) The CSR Committee shall institute a transparent
monitoring mechanism for implementation of
the CSR projects or programs or activities
undertaken by the
company.

6. (1) CSR The CSR Policy of the company

Policy shall, inter-alia, include the following, namely
:-
(a) a list of CSR projects or programs which a company
plans to undertake areas or subjects specified in
Schedule
VII of the Act, specifying modalities of execution of
such project or programs and implementation
schedules for
the same; and

(b) monitoring process of such

projects or programs:
1st Proviso to Provided that the CSR activities does not include the
Rule 6 (1) activities undertaken in pursuance of normal
course of business of a company.

2nd Proviso to Provided further that the Board of Directors shall

Rule 6 (1) ensure that activities included by a company in its
Corporate Social Responsibility
Policy are related to the areas or

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 subjects specified in Schedule VII of
the Act.
Rule 6 (2) The CSR Policy of the company shall specify| that the
surplus arising out of the CSR projects or programs or
activities shall not form part of the business profit of a
company.

7. CSR CSR expenditure shall include all expenditure including

Expenditure contribution to corpus, for projects or programs relating
to CSR activities approved by the Board on the
recommendation of its CSR Committee, but does not
include any expenditure on an item not in conformity or
not in line with activities which fall within the areas or
subjects, specified in
Schedule VII of the Act.

8. (1) CSR The Board's Report of company covered under these

Reporting rules pertaining to a financial year commencing on or
after the 1st day of April, 2014 shall include an annual
report on CSR containing
particulars specified in Annexure.

Rule 8 (2) In case of a foreign company, the balance sheet filed

under sub- clause (b) of sub-section (l) of section 381
shall contain an
Annexure regarding report on CSR.

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9. Display of The Board of Directors of the company shall, after
CSR activities taking into account the recommendations of CSR
on its website Committee, approve the CSR Policy for the
company and disclose contents of such policy its
report and the same shall be displayed on the
company's website, if any, as per the particulars
specified in the
Annexure.

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 Subject: FAQ with regard to Corporate Social responsibility

Q. FAQ
No.
1. Whether CSR provision of the Companies Act, 2013 is applicable
to all companies?

CSR provisions of the Companies Act 2013 is applicable to every

company registered under the Companies Act 2013 and any other
previous companies law having
i. Net worth of rupees five hundred crore or more, or
ii. ii. Turnover of rupees one thousand crore or more or
iii. iii. A net profit of rupees five crore or
more during any financial year

2. What is meaning of ‘any financial year’ mentioned above?

“Any Financial Year” referred under Sub- section (1) of Section

135 of the Act read with Rule 3(2) of Companies CSR Rule, 2014
implies any of the three preceding financial years (refer
General Circular No. 21/2014, dated: 18.06.2014)

3 Whether CSR expenditure of a company can be claimed as a

business expenditure?

The amount spent by a company towards CSR cannot be claimed

as business expenditure. The Finance Act, 2014 provides that any
expenditure incurred by an assessee on the activities relating to
Corporate Social Responsibility referred to in section 135 of the
Companies Act, 2013 shall not be deemed to be an expenditure
incurred by the assessee for the purposes of the business or
profession.

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4. Whether the ‘average net profit’ criteria for section 135(5) is net profit
before tax or net profit after tax?

Computation of net profit for section 135 is as per section 198 of the
Companies Act, 2013 which is primarily PROFIT BEFORE TAX
(PBT).

5 Can the CSR expenditure be spent on the activities beyond schedule

vii?

General Circular No. 21/2014 dated June 18, 2014 of MCA has clarified
that the statutory provision and provisions of CSR Rules, 2014, is to
ensure that activities undertaken in pursuance of the CSR policy must
be relatable to Schedule VII of the Companies Act, 2013. The entries in
the said Schedule VII must be interpreted liberally so as to capture the
essence of the subjects enumerated in the said Schedule. The items
enlisted in the Schedule VII of the Act, are broad-based and are
intended to cover a wide range of activities. The General Circular also
provides an illustrative list of activities that can be covered under CSR.
In a similar way many more can be covered. It is for the Board of
the company to take a call on this.

6. What tax benefits can be availed under CSR?

No specific tax exemptions have been extended to CSR expenditure per

se. The finance Act, 2014 also clarifies that expenditure on CSR does not
form part of business expenditure. 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.

7. Which activities would not qualify as CSR?

i. The CSR projects or programs or activities

that benefit only the employees of the company and their families.

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 ii. One- off events such as marathons/ awards/ charitable
contribution/ advertisement/ sponsorships of TV programs etc.
iii. Expenses incurred by companies for the fulfilment of any
other Act/ Statue of regulations (such as Labor Laws, Land
Acquisition Act, 2013, Apprentice Act, 2013, Apprentice Act, 1961
etc.)
iv. Contribution of any amount directly or indirectly to any
political party.
v. Activities undertaken by the company in pursuance of its
normal course of business.
vi. The project or programs or activities
undertaken outside India.

8. Whether a holding or subsidiary of a company which fulfils the

criteria under section 135(1) has to comply with section 135,
even if the holding and subsidiary itself does not fulfill the criteria.

Holding or subsidiary of a company does not have to comply with

section 135(1) unless the holding or subsidiary itself fulfills the
criteria.

9. Whether provisions of CSR are applicable on Section 8 Company,

if it fulfills the criteria of section 135(1) of the Act.

Section 135 of the Act reads “Every company……”, i.e. no specific

exemption is given to section 8 companies with regard to
applicability of section 135, hence section 8 companies are
required to follow CSR
provisions.

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10. Can contribution of money to a trust/ society/ section 8 companies
by a company be treated as CSR expenditure of the company?

General Circular No 21/2014 of MCA dated June 18, 2014 clarifies

that contribution to Corpus of a Trust/ Society/ Section 8
companies etc. will qualify as CSR expenditure as long as:
1. The trust/ Society/ Section 8 company etc. is created
exclusively for undertaking CSR activities or
2. Where the corpus is created exclusively for a purpose
directly relatable to a
subject covered in Schedule VII of the Act.

11. Whether display of CSR policy of a company on website of the

company is mandatory or not?

As per section 135(4) the Board of Directors of the company shall,

after taking into account the recommendations of CSR Committee,
approve the CSR Policy for the company and disclose contents of
such policy in its report and the same shall be displayed on the
company’s website, if any (refer Rule 8 & 9 of CSR policy,
Rules 2014).

12. Whether reporting of CSR is mandatory in board’s report?

The Board’s Report of a company qualifying under section

135(1) pertaining to a financial year commencing on or after the
1st day of April, 2014 shall include an annual report on CSR
containing particulars specified in Annexure. (refer Rule 9 of
CSR policy, Rules
2014).

13. Whether it is mandatory for foreign company to give report on CSR

activity?

In case of a foreign company, the balance sheet filed under sub-

clause (b) of sub-section (1) of section 381 shall contain an
Annexure
regarding report on CSR.

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14. Whether contribution towards disaster relief qualifies as CSR or
not?

(May please refer point no. 7 to the annexure to General Circular

dated 18.06.2014 issued by
Ministry of Corporate Affairs).
15. Whether contribution in kind can be monetized to be shown as
CSR Expenditure?

Section 135 prescribes “….. shall ensure that company

spends…..”. The company has to spend the amount.

16. if a company spends in excess of 2% of its average net profits of

three preceding years on CSR in a particular year, can the excess
amount spent be carried forward to the next year and be offset
against the required 2% CSR expenditure of the next year?

Any excess amount spent (i.e., more than 2% as specified in Section

135) cannot be carried forward to the subsequent years and
adjusted
against that year’s CSR expenditure.

17. Can the unspent amount from out of the minimum required CSR
expenditure be carried forward to the next year?

The Board is free to decide whether any unspent amount from out
of the minimum required CSR expenditure is to be carried forward
to the next year. However, the carried forward amount should be
over and above the next year’s CSR allocation equivalent to at least
2% of the average net profit of the company of
the immediately preceding three years.

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18. What is the role of government in monitoring implementation of
CSR by companies under the provision of the companies act,
2013?

The main thrust and spirit of law is not to monitor but to generate
conductive environment for enabling the corporates to conduct
themselves in a socially responsible manner, while contributing
towards human development goals of the country.
The existing legal provisions like mandatory disclosures,
accountability of the CSR committee and the Board, provisions for
audit of the accounts of the company etc., provide sufficient
safeguards in this regard. Government has no role to play in
monitoring
implementation of CSR by companies.

19. Whether government is proposing to establish any mechanism for

third parties to monitor the quality and efficacy of CSR expenditure
as well as to have an impact assessment of CSR by companies?

Government has no role to play in engaging external experts for

monitoring the quality and efficacy of CSR expenditure of
companies. Boards / CSR Committees are fully competent to
engage third parties to have an impact assessment of its CSR
programme to validate
compliance of the CSR provisions of the law.

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20. Can CSR funds be utilized to fund government scheme?

The objective of this provision is indeed to involve the corporates

in discharging their social responsibility with their innovative ideas
and management skills and with greater efficiency and better
outcomes. Therefore, CSR should not be interpreted as a source of
financing the resource gaps in Government Scheme. Use of
Corporate innovations and management skills in the delivery of
‘public goods’ is at the core of CSR implementation by the
companies. In- principle, CSR fund of companies should not be used
as a source of funding Government Schemes. CSR projects should
have a larger multiplier effect than that under the Government
Schemes.

However, under CSR provision of the Act and rules made

thereunder, the Board of the eligible company is competent to take
decision on supplementing any Government Scheme provided the
Scheme permits corporates participation and all provisions of
Section 135 of the Act and rules thereunder are compiled by
the company.

21. Who is the appropriate authority for approving and implementation of

the CSR programmes/projects of a company? What is government’s
role in this regard?

Government has no role to play in this regard. Section 135 of the Act,
Schedule VII and Companies CSR Policy Rules, 2014 read with General
Circular dated 18.06.2014 issued by the Ministry of Corporate Affairs,
provide the broad contour within which eligible companies are
required to formulate their CSR policies including activities to be
undertaken and implement the same in the right earnest. Therefore,
all CSR programmes/ projects should be approved by the Boards on
the recommendations of their CSR Committees. Changes, if any, in the
programme / project should also be undertaken only with the
approval of the Committee / Board.

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22. How can companies with small CSR funds take up CSR activities in
a project/ programme mode?

A well designed CSR project or programme can be managed with

even small fund. Further, there is a provision in the CSR policy
Rules, 2014 that such companies can combine their CSR programs
with other similar companies by way of pooling their CSR
resources. (refer rule
4 in Companies (CSR Policy) Rules, 2014.

23. Whether involvement of employees of the company in CSR

project/ programme of a company can be monetized and
accounted for under the head of ‘CSR expenditure’?

Contribution and involvement of employees in CSR activities of

the company will no doubt generate interest/ pride in CSR work
and promote transformation from Corporate Social Responsibility
(CSR) as an obligation to Socially Responsible Corporate (SRC) in
all aspects of their functioning. Companies therefore, should be
encouraged to involve their employees in CSR activities. However
monetization of pro bono services of employees would not
be
counted towards CSR expenditure.

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