What is CSR?
CSR stands for Corporate Social Responsibility it has been incorporated in
Companies Act 2013 under section 135.
India is one of the first countries in the world to make corporate social
responsibility (CSR) mandatory, Due to an amendment in the Companies Act,
2013 in April 2014. Businesses are able to invest their profits in areas such as
education, betterment of society, sanitization, and disaster relief as part of
any CSR compliance.
Amid the COVID-19 (corona virus) outbreak, the Ministry of Corporate Affairs has
notified that companies' expenditure to fight the pandemic will be considered
valid under CSR activities. Profits may be utilized on various activities
related to COVID-19 such as donation to PM-CARES Fund and promotion of
healthcare including preventive healthcare and sanitation, and disaster
CSR was introduced as a measure to assess the corporate responsibility of a
business towards the:
A business uses the resources of the society so it is the responsibility of a
business to give something in return. Nowadays investors are considering
company's CSR report before investing in it.
Impact of CSR:
- Mandatory requirement to form CSR committee to the companies qualifying
the criteria given under Sec. 135 of Companies Act 2013
- Formation of CSR Policy and uploading the same on the website of the
- Mandatory expenditure of prescribed amount on CSR activities such as
education, poverty, gender equality and hunger.
- Increased trust of shareholders, employees and society in general
towards the company.
- Businesses in India have now started integrating CSR initiatives with
their corporate strategies.
Companies now have specific departments to monitor the CSR activities,
prepare CSR policies and strategies, set separate goals and budgets for CSR
Increased compliance and filing of reports for the Companies.
Impact of The Companies (Amendment) Act, 2020 on CSR:Setting off excess CSR expenditure:
Currently, excess CSR spend cannot be carried forward. Therefore, a 3rd proviso
has been added to sub-section 5 of Section 135 whereby: if the corporate spends
an amount in more than two per cent of the typical net profits of the company
made during the three immediately preceding financial years, such company may
set off such excess amount against the requirement to spend under this
sub-section for the number of prescribed financial years in a manner as
In simple words, the businesses which spend quite the prescribed two per cent on
CSR during a particular fiscal year may carry it forward as credit for
fulfillment of CSR obligations for the next few years.
Amendments relating to Social Stock Exchange:
Companies which are spending above the mandatory two percent of their pre-tax
profits on Corporate Social Responsibility (CSR) may soon be ready to trade this
excess CSR expenditure. This has also been recommended by market watchdog SEBI's
High-Powered Committee on Social Stock Exchange (SSE).
Under this allowance, companies that are spending more than the limit of two per
cent set under Section 135(5) of the Indian Companies Act 2013 can sell or trade
this excess amount to the companies which have failed to meet their annual
Penalty for Non Compliance:
According to the new sub-section 7 to Section 135: If a company is in default
in complying with the provisions of sub-section (5) or sub-section (6), the
company shall be liable to a penalty of twice the quantity required to be
transferred by the corporate to the Fund laid out in Schedule VII or the Unspent
Corporate Social Responsibility Account, as the case could also be , or one
crore rupees, whichever is a smaller amount , and each officer of the
corporate who is in default shall be susceptible to a penalty of one-tenth of
the amount required to be transferred by the corporate to such Fund laid out
in Schedule VII, or the Unspent Corporate Social Responsibility Account, because
the case could also be , or two lakh rupees, whichever is less.
CSR Committee:Under the new sub-clause 9:
Where the amount to be spent by a corporation under
sub-section (5) doesn't exceed fifty lakh rupees, the need under sub-section (1)
for constitution of the company Social Responsibility Committee shall not be
applicable and therefore the functions of such Committee provided under this
section shall, in such cases, be discharged by the Board of Directors of such
In simple words, the businesses which have but fifty lakh rupees to spend on CSR
activities don't need to constitute a CSR committee and therefore the CSR
obligations could also be fulfilled by the Board of Directors of such company.
Examples of CSR in India:ITC Group:
It is a conglomerate which was able to create job opportunities for over 6
million people through its CSR activities. It has also introduced a platform
called E-Choupal for the farmers through which they can sell their produce using
internet and get better profit margin for their crops.
The Tata Group India carries out various CSR projects, most of which are Society
development and poverty alleviation programs. It also works in the field of
women empowerment activities, income generation, rural community development,
and other social welfare programs. Tata Group has established various
educational institutions and also provides various scholarships.
The group also engages in healthcare projects, child education, immunization,
spreading awareness of AIDS. The other areas are economic development various
agriculture programs, environment sustainability, providing, and infrastructure
development, like hospitals, research centers, educational
Ultratech Cement, India's eminent cement company is involved in social work
across various villages in the country with aim to create self sustainability
and independent lifestyle. It perform various CSR activities in the field of
healthcare and poverty alleviation, education, infrastructure, environment,
social welfare, and sustainable livelihood.
Mahindra & Mahindra:
Indian automobile manufacturer Mahindra & Mahindra (M&M) it formed the K. C.
Mahindra Educational Trust in 1954 and Mahindra Foundation in 1969 with the aim
of promoting education. The company's main aim is to develop various education
programs to assist economically and socially disadvantaged communities.
Its CSR programs invest in education, scholarships and livelihood training,
healthcare for rural areas, water preservation, and disaster management
programs. It also runs programs such as Nanhi Kali for education of girls,
Mahindra Pride Schools for industrial training, and Lifeline Express for
healthcare services in remote areas.
CSR plays a pivotal role in the industry for the businesses to gain trust of its
stakeholders. Companies should start focusing on areas that are neglected by
government to perform CSR activities and achieve inclusive and sustainable
development of Indian economy.
Nowadays businesses are not only focused on profit maximization but to achieve
an inclusive growth of society as a whole. It's a need of the hour for the
businesses to start focusing on activities such as:
- Medical technology and developing Healthcare infrastructure in India.
- Providing quality education in the rural region of India and providing
various scholarships to the underprivileged students.
- Contributing to Clean India Mission with an aim to improve standard of
living of the society.
- Minimize the environmental pollution and maximize the social benefits
and provide healthy environment for the people.
Companies should prepare a periodical CSR Report to inform its stakeholders
about the commitments and actions in social and environmental areas. The main
aim of the CSR Report is to increase transparency and to enable companies to
measure the impact of their activities on the environment, on society and on the
Government should ensure strict implementation of CSR activities across the
India by monitoring the prescribed expenditure by companies and the progress of
various CSR projects undertaken by the companies.