Legal Provisions about Csr
On 1 April 2014, India became the first country to legislate on corporate social responsibility. The rules of Section 135 of the Indian Companies Act require companies with a certain turnover and profitability to spend 2% of their average net profit over the past three years on CSR. Corporate social responsibility (CSR) is a way in which a company manages its business processes in order to have an overall positive impact on society. It covers sustainability, social impact and ethics, and done right, it should be about the core business – how companies make their money – not just extra extras like philanthropy. Companies involved in activities such as rural development, skills development, agricultural advisory projects, contributions to the Prime Minister`s National Assistance Fund, etc. However, they used tax exemptions under other relevant provisions of the Income Tax Act, such as sections 80G and 35AC. The tax authority challenged the claim for deduction under Section 80G on the grounds that the «amounts paid» must be in the nature of a «gift» in order to be deductible under that section. It has been argued that a voluntary act by a donor is an essential element in treating an amount paid as a «gift». However, CSR fees must be paid compulsorily in accordance with the provisions of the Companies Act and should therefore not be allowed as a deduction under that section.
We live dynamic lives in a world that is becoming increasingly complex. Global environmental, social, cultural and economic issues have become part of our daily lives. Rising profits are no longer the only business indicator for companies and they must play the role of responsible corporate citizens because they have an obligation to society. The concept of Corporate Social Responsibility (CSR) introduced by the Companies Act 2013 gives Indian companies greater responsibility in establishing a clear CSR framework. Many companies such as TATA and Birla volunteer for CSR. The Act introduces the culture of corporate social responsibility (CSR) in Indian companies and requires companies to formulate a CSR policy and devote it to social upgrading activities. CSR is about companies giving back to society. Corporate secretaries are expected to be aware of the legal and technical requirements related to CSR in order to guide management and the Board of Directors.
Under Section 135(1) of the Companies Act 2013, «Any company with a net worth of five hundred crore or more, or a turnover of one thousand crores or more, or a net profit of five crores or more in a financial year, shall form a Corporate Social Responsibility Committee of the Board consisting of three or more directors. one full member, one of whom is an independent member of the Board of Directors. »; Thus, any business with a net worth of Rs 500 crore or more, or a turnover of Rs 1000 crore or a net profit of Rs 5 crore or more in a financial year, falls within the scope of CSR provisions. These special provisions apply to all Indian companies as well as foreign companies. If a company violates the regulations, it shall be punished by a fine, which shall not be less than fifty thousand rupees, but may be up to twenty-five rupees lakh, and any officer of such company who is in default shall be punished by imprisonment for up to three years, or a fine, which shall not be less than fifty thousand rupees, which, however, is five rupees lakh or both. With regard to CSR reporting, the provisions are as follows: Mandatory CSR may refer to a general legal obligation to act in a socially responsible manner. This duty could be justified under company law or as part of the fiduciary duty of directors. The UK Companies Act 2006 takes the latter approach by requiring directors to consider the interests of employees, consumers, suppliers, the environment and the community when defending the interests of shareholders. In contrast, China`s revised 2006 Company Law explicitly requires a company to «assume its social responsibility.» [1] And Indonesia`s Limited Liability Company Law, amended in 2007, explicitly requires that «extractive and resource-related companies be required to implement corporate social and environmental responsibility.» [2] The Ministry of Enterprise Affairs clarified that, although no specific tax exemption has been granted to CSR expenditures, expenditures on various activities such as contributions to the Prime Minister`s Assistance Fund, scientific research, rural development projects, skills development projects, agricultural expansion projects, etc. are already exempt under various sections of the Income Tax Act. are. In addition, the memorandum explaining the provisions of the 2014 Finance Law also states that the CSR expenditure described in Articles 30 to 36 of the Law is allowed as a deduction under those Articles, subject to compliance with the conditions set out therein.
Therefore, it can be concluded that CSR-type expenses can be claimed as a deduction under other sections such as section 35AC of the Income Tax Act if the established conditions are met. Submit your article via our online form Click here Note* we only accept original articles, we do not accept articles that have already been published on other websites. For further information, please contact: editor@legalserviceindia.com Corporate Social Responsibility has been introduced pursuant to section 135 of the Companies Act 2013. Among the various provisions of the Act, the Government of India requires a certain category of profitable enterprises to pay their share of profits to social activities according to a special procedure prescribed in the CSR Rules and Regulations. Yes, the CSR provisions apply to a corporation registered for charitable purposes under section 8 of the Companies Act, 2013. Article 135 (1) of the law stipulates that any enterprise with the declared net assets, turnover or net profit must establish a CSR committee. Therefore, Article 8 also requires companies to establish a CSR committee and comply with CSR provisions when they reach the declared net worth, turnover or net profit. Disclaimer: The materials provided here are for informational purposes only. No attorney-client relationship is created when you access or use the Site or the Materials. The information presented on this website does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from a licensed attorney in your state. However, given that many laws started with timid drafts and compromises with politics, but gradually improved, recent CSR laws could be viewed with optimism as an experimental step towards developing better CSR laws.
With this positive vision, laws could be improved by strengthening them through government oversight, legal penalties for non-compliance, and stakeholder remedies against companies that do not comply. Administrative overhead usually includes items such as personnel costs, ancillary costs, office supplies, legal fees, etc. However, expenses attributed to the implementation of the project are only included in the project costs. In addition, in his proposal for corporate social responsibility rules under section 135 of the Companies Act 2013, the Chair of the CSR Committee mentioned the following guiding principle: CSR is the process by which an organization reflects and develops its relationships with stakeholders for the common good and demonstrates its commitment to this by adopting appropriate business processes and strategies. The average net income used to determine expenses related to CSR activities must be calculated in accordance with the provisions of section 198 of the Act and excludes items in accordance with Rule 2(1)(h) of the Corporate Rules, 2014 (CSR Policy). Section 198 of the Act provides for certain additions/deletions (adjustments) to be made when calculating a company`s net profit. Essentially, capital/income payments, income tax and compensation for past losses are excluded. The government monitors compliance with CSR regulations through company disclosures on the MCA portal.
