Companies Act of India lays down tremendous emphasis on the corporate to carry out the social responsibility function. In this article you will find the corporate social responsibility provisions, to which companies these provisions are applicable and how the compliance has to be done along with the disclosures to be made with regard to these provisions and finally the penal provisions applicable to the company and its directors/officers in case of the default in compliance of these provisions.
If your company, whether private or public has a net worth of at least INR 5000 million or have a minimum turnover of INR 10,000 million or has a net profit of INR 50 million or more during the immediately preceding financial year then #csr is applicable on your company.
If CSR provisions are applicable on your company then it is required to spend in every financial year at least 2% of the average net profits on csr activities made during the three immediately preceding financial year.
Disclosure in case of failure to spend the CSR amount
If your company fails to spend the CSR amount as per the above stated provisions then the Board shall in its report specify the reasons for not spending the amount and unless the unpaid amount relates to any ongoing project, transfer the unspent amount to a fund specified under the law within 6 months of the expiry of the financial year.
Penal action in case of non compliance
In case your company is under default of the csr provisions and does not spend the amount or transfers the amount to a fund as required by the law then it shall be liable to a penalty of twice the amount required to be transferred by it to the fund specified in the law or the unspent amount of corporate social responsibility or INR 10 million whichever is less. Further if you are an officer of the company who is in default you and every other officer shall be liable to pay a penalty of one- tenth of the amount required to be transferred by the company to such fund.
We have discussed the provisions regarding the CSR as contained in Companies Act of India, the compliance to be made, disclosures to be done and the consequences of non-compliance. It is to be noted that the CSR provisions put a great responsibility on the companies in India to set out a clear CSR framework. It is all about corporate giving back to the society from which it earns profit, In case your company does not comply with the #csr provisions then it would be required along with the directors and officers to face the penalty. If you are a director/officer of such a company, then in order to avoid such penalties the you along with the other officers must take every care to ensure the timely absolute compliance. Are you complying with the CSR provisions ?
Complete text of the Notification of Companies (Corporate Social Responsibility Policy) Rules, 2014 can be checked here
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The author is a practicing Chartered Accountant, Senior Partner in Kohli Chitkara & Co. LLP and can be contacted at [email protected]. Any comments or queries are welcome.
The information provided in this article is for general informational purposes only. All efforts have been made to provide accurate information in this document, however it should not be perceived as a professional or legal advice. Reader should consult a professional before making any decision based upon this document. Under no circumstance author or the publisher shall have any liability to you for any loss or damage of any kind incurred as a result of the use of this information.