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Presentation On
Legal aspect
OF
CORPORATE SOCIAL
RESPONSIBILITY
11-Jan-17
11-Jan-17
SL. No. PARTICULARS
PART-A BACKGROUND/ NEED/ ORIGIN OF CSR
PART-B CSR( CORPORATE SOCIAL RESPONSIBILITY) LAW-2013
1. Provisions of Companies Act, 2013
2. C.S.R. Committee
3. Annual Reporting of CSR Spend
4. Tax Impact under various types of CSR Activities
PART-C IMPLEMENTATION OF CSR AGENDA
PART-D CONCLUSIONS
11-Jan-17
‘A commitment to improve community well being through discretionary business practices and contributions of corporate resources’.
– Philip Kotler and Nancy Lee (2005)
Corporate social responsibility encompasses not only what companies do with their profits, but also how they make
them. It goes beyond philanthropy and compliance and addresses how companies
manage their economic, social, and environmental impacts, as well as their
relationships in all key spheres of influence: the workplace, the marketplace, the supply
chain, the community, and the public policy realm.
- Harvard University
‘A multi layered concept that can be differentiated
into four interrelated aspects – economic, legal, ethical and philanthropic
responsibilities’.
– Archie Carroll (1991)
‘A way companies manage the business
processes to produce an overall positive impact on
society.’
– Mallen Baker, Founding Director,
Business Respect
Corporate Social Responsibility is the continuing commitment by business to
behave ethically and contribute to economic development while
improving the quality of life of the workforce and their families as well as of the local community and society at
large”
Lord Holme and Richard Watts
11-Jan-17
Mortality Rate is 53
per 1,000 that a
newborn baby will die
before reaching age
five, if subject to age-
specific mortality rates
of the specified year
Literacy rates are
82.14% for men and
65.46% for women
Worldwide, infectious
diseases such as
waterborne diseases
are the number one
killer of children
under five years old
India ranks last
among the world‘s
20 biggest
economies in
terms of air
pollution levels
29.8%
population is
below poverty
line
Indian census
statistics reveal
that the sex ratio
in India slumped
from 976 girls per
1000 boys in 1961
to 914 in 2011
Asia has
maximum
numbers of
polluted rivers
than anywhere
else in the
world
The
unemployment
rate is
estimated to be
8.8%
In India alone, the
single largest cause of
ill health and death
among children is
diarrhea, which kills
nearly half a million
children each year
11-Jan-17
Quoran States
They ask thee what they should
spend (In charity). Say: Whatever
ye spend that is good, is for
parents and kindred and orphans
and those in want and for
wayfarers. And whatever ye do
that is good, -Allah knoweth it
well.
Guru Granth Sahib
states
―He who eats what
he earns through
honest work and
shares with others,
he alone O Nanak
recognises (follows)
the true path in
life.‖
Bhagvad Gita states
Charity which is given without
consideration of anything in return,
at a sanctioned and holy place and
at an astrologically auspicious time,
given as a matter of duty to one
qualified; that charity is regarded as
of the nature of goodness.
Bible states
Do not neglect to
do good and to
share what you
have, for
such sacrifices are
pleasing to God.
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11-Jan-17
As per Section 135 of the Companies
Act 2013 (Applicable from Financial
Year 2014-15), every
Company(including Private Company)
having given particulars during any
financial year shall constitute a
Corporate Social Responsibility
Committee of the Board consisting of
3 or more directors (including one
independent director at least, subject
to exemptions.
Turnover of at least
Rs.1,000 crores Net worth of at
least Rs.500 crores
Net profit of Rs. 5
crores
A Private. Company
(only 2 directors on its
Board)- 2 Directors
Foreign company
One person (i.e. person
resident in India authorized to
accept on behalf of the
company service of notices or
other documents served on the
company) and another person
shall be nominated by the
foreign company
Unlisted Company/ Private
Company (not required to
appoint Independent
Director)- 3 or more
directors without any
Independent Director
Other Companies: 3 or
more directors, with at
least 1 Independent
Director
11-Jan-17
Formulation and
recommendation
of CSR Policy to
Board
Ensure & Monitor
Compliance of CSR
Policy through
preparation of
Transparent
Monitoring
Mechanism for
implementation
Approve the CSR Policy
for and disclose
contents of such Policy
in its report and also
place it on the
company‘s website
Recommend the amount
of expenditure and
ensure that at least two
per cent of the average
net profits is spent by
the company in every
Financial year
11-Jan-17
CSR Policy should specify that the corpus would include the following:
(i) 2% of the average net profits(Profit before tax) (ii) Any income arising there from,
(iii) Surplus arising out of CSR activities.
Following should be mentioned in CSR Policy:
Surplus arising out of the CSR activity will not be part
of business profits of a company. Also, any surplus
arising out of CSR Activities will be re-directed towards
CSR Activities and not the business of the company.
Transparent
monitoring
mechanism
Modalities
of
execution
List of CSR
projects/programmes/
activities to be
undertaken as specified
in Schedule VII of the Act
Expenditure/budget
for the CSR
Activities
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•The Board shall ensure that the amount to
be spent ,in every Financial Year shall be,
at least 2% of the Average Net Profit(Profit
before tax) of the Company made during
the 3 immediately preceding financial
years, in pursuance of its CSR Policy.
AMOUNT OF CSR
EXPENDITURE
•Once a company is covered under the provisions of CSR as
per sub section (1) of Section 135, the company will have to
comply with the rules for three consecutive financial years,
even if in the subsequent years, these rules do not apply to
them. However, any company that ceases to be covered
under Section 135 of the Act for three consecutive financial
years will not be required to comply with the provisions
relating to CSR till such time it meets the criteria specified in
sub section (1) of Section 135.
APPLICABILITY
OF CSR
PROVISIONS
ACTIVITIES INCLUDED ACTIVITIES EXCLUDED
Approved by the board of directors, and on the recommendation of the CSR Committee (must be cited in the CSR Policy)
Political contribution
Building Capacity of CSR team (up to 5 percent of CSR expenditure), through institutions with an established track record of at least three years
Solely for benefit of employees and their families
Contribution to corpus Activities that are in pursuance of normal course of business of a company.
Any surplus earned through CSR Activities (or interest earned on corpus funding) will, however, need to be plowed back as additional CSR spend.
11-Jan-17
Schedule VII Activities-Activities which may be included by companies in their Corporate
Social Responsibility Policies:
11-Jan-17
Eradicating extreme
hunger & poverty
Reducing child mortality and
improving maternal health
Employment enhancing
vocational skills
Contributions to Prime Minister Fund or any
other fund set up by the Central Government or the State Governments
Social business projects such other matters as may be
prescribed
Promotion of education
Ensuring environment sustainabilit
y
Combating human immunodeficiency
virus, acquired immune deficiency syndrome,
malaria and other diseases
Promoting gender equality and
empowering women
Composition of the
CSR Committee
Responsibility statement
of CSR Committee stating
that the implementation
and monitoring of CSR
Policy is in compliance
with CSR objectives and
policy of the company.
Details of CSR
spent during the
financial year
Disclosure of Reasons of
not spending the
prescribed CSR
Expenditure
Average net profit
of the company for
the last three
financial years
Brief outline of the
company‘s CSR
Policy
Overview of
projects or
programs to be
conducted
Prescribed CSR
expenditure - 2%
of the average net
profits of last 3
Financial Years
CSR Policy should
be displayed on
the company
website
11-Jan-17
Total Revenue Less: Extraordinary income(if included above) 1. Profit from Premium of shares/Debentures 2. Profit from sales of Forfeited shares 3. Profit in terms of capital natures (in terms of undertaking of company or any part of
thereof) 4. Profit from the sale of immovable property/fixed assets/any capital nature 5. Any surplus change in carrying amount of an assets or liability recognized in equity
reserves
Total Revenue after extraordinary income Less: Total Expenditure including Operating Expenses (i.e. Raw material expenses, stock adjustments, wages, selling and admin expenses,
interest, depreciation) Profit before Tax
Add: if debited in Profit & Loss A/c 1. Income tax and any other tax 2. Compensation, damages or other payments made voluntarily 3. Loss of capital natures including loss on sale of undertaking of company or any part of
thereof 4. Any transfer to assets/liabilities revaluation reserves
Net Profit
11-Jan-17
The Finance Act, 2014 has proposed that CSR expenditure shall not be
allowed as expenditure under section 37 of Income Tax Act, 1961.
However, any CSR expenditure which is allowed as deduction under other
sections such as section 35, 35AC, 80G etc. is permissible.
Companies which are subject to the Minimum Alternate Tax (‗MAT‘) are
likely to get benefit under MAT, As MAT is calculated on Book profits of the
company and CSR expenditures are to be debited in profit & loss account
which will ultimately result in reduced MAT liability.
As per Section 80G of the Income tax Act,1961regarding Deduction in respect of donations to certain funds, charitable
institutions, etc. it states as follows:
―In computing the total income of an assessee, there shall be deducted, in accordance with and subject to the
provisions of this section,--
in a case where the aggregate of the sums specified in subsection (2) includes any sum or sums of the nature specified
in sub- clause (iiia) or in sub- clause (iiiaa) or in sub- clause (iiiab)] or in sub- clause (iiie)] or in sub- clause (iiif)] or
in sub- clause (iiig)] or sub- clause (iiih) or] in] sub- clause (vii) of clause (a) thereof, an amount equal to the whole of
the sum or, as the case may be, sums of such nature plus fifty per cent of the balance of such aggregate; and]
in any other case, an amount equal to fifty per cent of the aggregate of the sums specified in sub- section (2)‖
As per Section 35 AC of the Income Tax Act,1961 regarding Expenditure on
eligible projects or schemes, it states as follows:
―Where an assessee incurs any expenditure by way of payment of any sum to a
public sector company or a local authority or to an association or institution
approved by the National Committee for carrying out any eligible project or
scheme, the assessee shall, subject to the provisions of this section, be allowed a
deduction of the amount of such expenditure incurred during the previous year‖.
11-Jan-17
Donations paid to
specified institutions
qualify for tax
deduction u/s 80G but
is subject to certain
ceiling limits. Based
on limits, all eligible
donations under
section 80G is divided
into four categories:
100% deduction
without any qualifying
limit (e.g., Prime
Minister‘s National
Relief Fund)
50% deduction
subject to
qualifying limit
(e.g., an approved
institution for
charitable purpose
other than
promoting family
planning)
50% deduction without
any qualifying limit
(e.g., Indira Gandhi
Memorial Trust)
100%
deduction
subject to
qualifying limit
(e.g., an
approved instit
ution for
promoting
family
planning)
11-Jan-17
Prime Minister‘s National
Relief Fund
National Defence Fund
Central Govt.‘s Fund for
Technology Development &
Application
The Chief Minister‘s
Earthquake Relief Fund,
Maharashtra
Donations made to Zila
Saksharta Samitis
The Army Central Welfare Fund
or the Indian Naval Benevolent
Fund or The Air Force Central
Welfare Fund
Army Central Welfare
Fund, Indian Naval Ben.
Fund, Air Force Central
Welfare Fund
The National Blood
Transfusion Council or a State
Blood Transfusion Council
National Illness Assistance
Fund
Prime Minister‘s Armenia
Earthquake Relief Fund
The Africa (Public Contribution –
India) Fund
National Trust for Welfare of
Persons with Autism, Cerebral
Palsy, Mental Retardation &
Multiple Disabilities
The National Foundation
for Communal Harmony
Approved university or
educational institution of
national eminence
Indian Olympic
Association/ other such
notified association
Andhra Pradesh Chief
Minister‘s Cyclone Relied
Fund
Chief Minister‘s or Lt.
Governor‘s Relief Fund
National Sports Fund
National Cultural Fund
Govt./ local authority/
institution/ association
towards promoting
family planning
11-Jan-17
Jawaharlal Nehru
Memorial Fund
Donations to govt./
local authority for
charitable purposes
(excluding family
planning)
Donations for repair/
renovation of notified
places of worship
World Vision India
Udavum Karangal
Indira Gandhi
Memorial
Trust
Prime Minister‘s
Drought Relief
Fund
National
Children‘s
Fund
Authority/
corporation having
income exempt under
erstwhile section or
u/s 10(26BB)
The Rajiv
Gandhi
Foundation
11-Jan-17
11-Jan-17
Donations to the
following are eligible for
100% deduction subject
to 10% of adjusted gross
total income
• Donations to the
Government or a local
authority for the
purpose of promoting
family planning
• Sums paid by a
company to Indian
Olympic Association
Donations to the
following are eligible for
50% deduction subject to
10% of adjusted gross
total income
• Donation to the
Government or any
local authority to be
utilized by them for
any charitable
purposes other than
the purpose of
promoting family
planning
Qualifying Limit:- The qualifying
limits u/s 80G is 10% of the adjusted
gross total income. The limit is to be
applied to the adjusted gross total
income. The ‗adjusted gross total
income‘ for this purpose is the gross
total income (i.e. the sub total of
income under various heads) reduced
by the following
•Amount deductible under Sections
80CCC to 80U (but not Section 80G)
•Exempt income
•Long-term capital gains
•Income referred to in Sections
115A, 115AB, 115AC, 115AD and
115D, relating to non-residents and
foreign companies
11-Jan-17
In case of direct CSR spending, the
effective tax rate will increase. The
company will have to pay additional taxes
where the company undertakes CSR
activities directly as CSR expenditure can
be done from post tax income.
In case, a company undertakes CSR activities
through NGOs registered under section 80G
(eligible for 50% tax deduction),then the tax
liabilities will be reduced to 50% on such
additional taxes.
The company will get 100% tax advantage and will not
be required to pay any additional taxes where it
undertakes CSR activities through NGOs registered
under section 35AC or through NGO registered under
section 80G (eligible for 100% tax deduction).
Sr.
No.
Specific CSR Activities referred under Schedule VII to the 2013 Act Expenditure allowed under the relevant provisions of
the Income-tax Act, 1961
I Activities concerning Basic necessities of Life More than prescribed layers of subsidiaries
- Eradication of poverty, hunger and malnutrition Section 35AC read with Rule 11K(i)(f) of Income-tax
Rules, 1962 (‗the 1962 Rules‘)
- Promoting Sanitation and health care and making available safe drinking water Section 35AC r.w. Rule 11k(i)(a),(f),(j) of the 1962
Rules
II Activities concerning Education
- Promoting Education, including special education and employment enhancing
vocational skills especially among children, women and elderly and the differently
able
Section 35AC r.w. 11K(i)(c),(i),(o),(p),(s) of the 1962
Rules
- Livelihood enhancement programs Section 35AC r.w. 11K(i)(j),(s) of the 1962 Rules
III Activities addressing inequality and gender discrimination
Section 35AC r.w. Rule 11K(i)(n),(i) of the 1962 Rules - Promoting gender equality
- Empowering women
- Setting up of homes and hostels for women and orphans
- Setting up old age homes, day care centre and such
IV Activities concerning Care for environment
Section 35AC r.w. Rule 11K(i)(d),(h),(l),(q),(r) of the
1962 Rule - Ensuring environmental sustainability and ecological balance
- Preservation of flora and fauna, animal welfare, agro forestry
- Conservation of natural resources and maintaining quality of soil, air and wate
11-Jan-17
Sr.
No.
Specific CSR Activities referred under Schedule VII to the 2013 Act Expenditure allowed under the relevant
provisions of the Income-tax Act, 1961
V Activities concerning protection of National Heritage, Art and Culture Section 35AC r.w. Rule 11K (The notification
issued under the Act in the past have accepted
the said activities for deduction u/s. 35AC
[except with no precedent available for
protection of national heritage u/s. 35AC, but
deduction could be claimed
in Section80G(2)(b)
- 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 of traditional arts and handicrafts and its development
VI Activities concerning benefit to Armed Forces, veterans, war widows and their
dependants
- Measures for the benefit of armed forces, veterans, war widows and their dependents Section 80G(2)(a)(i) and 80G(2)(a)(iii)(h)(c)
VII Activities concerning Sports
- Training to promote rural sports, nationally recognised sports, Paralympics sports and
Olympic sports
Section 35AC r.w. Rule 11K(i)(g)
VIII Activities concerning national relief and welfare of Economically backward class of
Society
- Contribution to PM National relief fund or any other fund Section 80G(2)(a)(iiia)
- Relief and welfare of the Schedules Casts, Schedules Tribes,\ Other backward castes,
minorities and women
Section 35AC r.w. Rule 11K(i)(b),(c) and Rule
11K(ii) of the Income-tax Rules
IX Activities concerning Technology incubators
- Contributions or funds provided to technology incubators located within academic
institutions which are approved by Central Government
Section 35(2AA) and Section 80G(2)(iihi)
[considering limited information available and
provided on the subject, it will have to be
determined as to whether the aforesaid
section shall be able to provide deduction to
the activities concerned]
X Activities concerning Rural Development -Rural Development Projects
COURTESY: CA Ankit Virendra Sudha Shah
SOURCE: file:///C:/Users/ABC/Desktop/CSR/Untitled%20Document.html
Section 35AC and Section 35CCA [with limited
information available and provided on the
term referred to as ‗rural development
projects‘ therefore, either of the provisions
may be considered for allowability of
expenditure]
11-Jan-17
Company can establish
their own following
legal entities
•Registered trust
•Registered society
• Company or its
subsidiary or holding
or associate company
under Section 8.
If a Trust, Society or
Company is not
established by the
Company, then it must
have an established
track record of three
years in undertaking
similar projects or
programs.
A company can
collaborate with other
companies for
undertaking CSR
activities in such
manner that the CSR
Committees of the
respective companies
are able to report
separately on such CSR
Activities.
11-Jan-17
Differential factors Trust Society Section 8 company22(earlier
known as Section 25 company)
Basic document Trust deed which contains
objects of the trust (bye-law)
Memorandum of association
Articles of association with
rules and regulations
Memorandum of association
Articles of association
Formation Simple Simple Slightly difficult
Jurisdiction Deputy registrar or charity
commissioner
Registrar of Societies Registrar of Companies
Legislation / statute Relevant state trust act Societies Registration Act 1860 Companies Act 2013
Objectives Social benefits and charitable Literary, charitable, scientific
and resource oriented
Non profit activities
Re-amendment or modification
of objects
Alteration can be undertaken
only by the founder or settler
Easy, legal procedures Complicated, legal procedures
Required members Minimum = 2, maximum = no
limit
Minimum = 7, maximum = no
limit
Minimum = 7, maximum = no
limit
Registration As trust with the registrar As society with society
registrar
As per Companies Act under
Section 8 (earlier Section 25)
11-Jan-17
Differential factors Trust Society Section 8 company22(earlier
known as Section 25 company)
Stamp duty 4% of trust property value will
be executed in non judicial
stamp paper with the registrar
No stamp paper required for
memorandum of association,
and rules and regulations
No stamp paper required for
memorandum and articles of
association
Name Easy to choose Easy to choose Prior approval required from
Registrar of Companies
Management board Trustees Governing body Board of directors and
management committee
Succession in management By election By election By appointment
Meetings No provisions Annual meeting as per law,
governing body meeting as per
the rules of society,
Quite extensive as per the
provision of Company Law
Statutory regulations Nominal Limited Maturable and exhaustive
Membership transfer Not possible Not possible Free or control as per desire
Payment to members As notified in trust deed Not restricted As approved by company and
state
Member admission Not applicable Governing body control General body or board control
through issue of capital
11-Jan-17
COURTESY: Handbook on Corporate Social Responsibility in India Source-PWC
In a country such as India, where one-third of the population is
illiterate, two-thirds lack access to proper sanitation, and 400
million people still live on less than US$2 a day, the passage of
the Companies Act should be hailed as a positive step forward in
ensuring that business contributes to equitable and sustainable
economic and social development.
Also, by making CSR mandatory, companies may treat it as a ―check the box‖ exercise rather than
looking at ways to innovate and generate a return from doing social and environmental good. And
most companies will comply by channeling funds to community organizations that are addressing
one of the priority topics mentioned. There is no shortage of organizations that will be willing to
accept these funds—there are an estimated 3.3 million NGOs in India—but few organizations have
the capacity and the skill to effectively manage projects that can have a large-scale impact. In an
effort to meet the spending obligations, companies may not do the right due diligence to select
high-impact, credible organizations.
It‘s too early to say what the real impact of this act will be, especially given
that passing it and enforcing it are two different things. But with the
controversy around the CSR provision, and the lack of specificity and detail,
there is an opportunity for leading companies to influence the way the CSR
mandate is interpreted. Given the immense need and tremendous business
opportunity in India, this can only be a good thing.
11-Jan-17
Dr. Gopal Energy Foundation
JA120,DLF TOWERS-A
NEW DELHI-110025
Tel. :91-11-26943664
Fax.: 91-11-26970075
Mobile 09810070075
E-mail info@dgef.in
Website-www.dgef.in
11-Jan-17
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