Following our previous post, on FAQs on Compliance, this post presents FAQs on the execution of CSR projects in line with Sec 135 along with Schedule VII.
1. Which activities are covered
under CSR?
Schedule VII to the Companies
Act, 2013 enlists the broad areas under which the Companies shall undertake
their CSR activities. MCA has clarified that 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 amended Schedule VII
of the Act, are broad-based and are intended to cover a wide range of
activities. The projects or programs must be in line with the CSR Policy of the
Company, which, in turn, has to comply with Schedule VII.
Areas broadly covered under Schedule VII:
• Eradicating hunger, poverty and malnutrition, promoting
preventive health care and sanitation and making available safe drinking water
• Promoting education, including special education and
employment enhancing vocation skills especially among children, women, elderly,
and the differently-abled and livelihood enhancement projects
• Promoting gender equality, empowering women, setting up
homes and hostels for women and orphans; setting up old age homes, day care
centres and such other facilities for senior citizens and measures for reducing
inequalities faced by socially and economically backwards groups
• Ensuring environmental sustainability, ecological
balance, protection of flora and fauna, animal welfare, agro-forestry,
conservation of natural resources and maintaining quality of soil, air and
water
• Rural development projects
• Protection of national heritage, art and culture
including restoration of buildings and sites of historical importance and works
of art; setting up public libraries; promotion and development of traditional
arts and handicrafts
• Measures for the benefit of armed forces veterans, war
widows and their dependents
• Training to promote rural sports, nationally recognized
sports, Paralympic sports and Olympic sports
• 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
• Contributions or fund provided to technology incubators
located within academic institutions which are approved by the Central
Government
• Slum area development
• Spending on relief operations in disaster-hit areas (as
per recent clarification by Central Government
2. Which activities will not qualify
under CSR?
• Social Activities meant exclusively for
employees and their families
• Activities undertaken in pursuance of normal
course of business
• Expenses incurred by companies for the
fulfilment of any Act/ Statute of regulations (such as Labour Laws, Land
Acquisition Act etc.)
• Training of enforcement personnel (Govt.
officials)
• Capacity building of Govt. Officials and
elected representatives
• Sustainable urban development and urban
public transport systems
• Contribution directly or indirectly for any
religious purpose
• One-off events such as marathons/ awards/
charitable contribution/ advertisement/ sponsorships of TV programmes, etc.
• Contribution directly or indirectly to any
political party
3. Many Companies have been
undertaking CSR activities from past. Should such companies continue to follow
that activity without seeking clarification from Ministry of Corporate Affairs?
If the activities are in line
with Schedule VII of the Act, then the Companies can continue to follow what
they were doing in the past and incorporate the said activity in CSR Policy.
4. Whether the Law mandates any location preference for implementing
CSR projects?
Section 135 mandates that the Company shall give preference to the
local area where it operates and areas around it, for spending the amount
earmarked for Corporate Social Responsibility activities.
Only CSR activities undertaken in India will be taken into
consideration for the purpose of Section 135.
5. How can a Company implement its
CSR activities? Can it establish a trust to undertake CSR activities for all
the Group companies?
The Company can implement its CSR
activities through the following approaches:
• Directly on its own through its employees
• Through registered trust or registered
society or non-profit company established by the company or its holding or
subsidiary or associate company. No minimum experience is required for such
registered trust or registered society or non-profit company
• Through other registered trust/registered
society/Section 8 Company with an established track record of >= 3 years in
undertaking similar programs or projects
• Collaborate with other companies in such
manner that the CSR Committees of respective companies are in a position to
report separately
• Contribution to Prime Ministers National
Relief Fund or any other fund set up by Central Government for socio-economic
development and relief and welfare of the Schedule castes, tribes, minorities
and women
• Contribution to technology incubators located
within academic Institutions approved by Central Government (such as IIT)
6. A company makes payment to a registered trust for carrying out CSR
activities. Should the company treat payment made to the trust or actual
expenditure incurred by the trust as its CSR expenditure?
As per the provisions of the Act, the CSR committee has to monitor
and the Board has to ensure that Company spends 2% on CSR every year. The
emphasis is on spending and not on contribution. The intent of the Legislature seems to ensure
that the Companies spend on CSR. Further, CSR rules require the CSR committee
to monitor the activities of the agency.
7. Whether the activity a company is required to do as per
statutory obligation under any law, would be termed as CSR activity?
No, the activity undertaken in pursuance of any law would not be
considered as CSR activity. In this regard, Ministry of Corporate Affairs
Circular No. 21/2014 dated June 18, 2014 clarifies that the expenses incurred
by companies for the fulfilment of any Act/ Statute of regulations (such as
Labour Laws, Land Acquisition Act etc.) would not count as CSR expenditure
under the Companies Act, 2013.
8. Where CSR activities lead to
profits then what about such surplus?
Rule 6(2) of the Companies
(Corporate Social Responsibility Policy) Rules, 2014 provides that 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. This impliedly means that the surplus arising out of CSR projects or
programs or activities of the company need to be spent on CSR.
Accordingly, the surplus should
be added to the minimum amount of 2% to be spent on CSR.
9. CSR provisions talk about
“registered trusts”. In many states there is no trust Act or registration of
trust is not mandatory, then in such case how CSR spending can be done through
a registered trust?
As per clarifications issued by
MCA on June 18, 2014, ‘Registered Trust’ (as referred in Rule 4(2) of the
Companies CSR Rules, 2014) would include Trusts registered under Income Tax Act
1956, for those States where registration of Trust is not mandatory. As a
corollary, for those States where registration of Trust is mandatory, the Trust
needs to be duly registered under the laws of such State.
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