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Corporate Social Responsibility (CSR) is a concept that recognizes the obligation of companies to balance financial success with the well-being of society and the environment. This involves taking accountability for the effects of their operations on all relevant stakeholders, including the public, consumers, employees, communities, and the environment. The idea is that as businesses grow in size, they incur not only financial responsibilities but also a broader range of non-financial, social responsibilities.

The objective of Corporate Social Responsibility (CSR) is to meet the expectations of society and is considered a holistic approach to social policies, practices, and programs that are integrated into business practices. The Companies Act, 2013 outlines the mandatory provisions for companies to fulfill their CSR obligations as provided in Section 135, Schedule VII and the Companies (Corporate Social Responsibility) Rules, 2014.

Applicability:

As per section 135(1) of the Companies Act 2013, the CSR provision is applicable to companies which fulfills any of the following criteria during the immediately preceding financial year:-

Ø  Companies having net worth of Rs. 500 crore or more; or 

Ø  Companies having turnover of Rs. 1000 crore or more; or

Ø  Companies having a net profit of Rs. 5 crore or more.

The Companies (Corporate Social Responsibility Policy) Rules, 2014 expanded the scope of compliance obligations to include holding and subsidiary companies, as well as foreign companies with branches or project offices in India that meet the above criteria. 

However, if a company fails to meet the above criteria for three consecutive fiscal years, it is exempt from CSR provisions until it meets the specified criteria again.

CSR Committee

Every company that is subject to CSR is required to form a CSR Committee of the Board: Consisting of three or more directors, at least one of whom must be an independent director. If a company is not required to appoint an independent director, it must have at least two directors on the Committee. In the case of a private company with only two directors on its Board, it consists of two directors. In the case of a foreign company, at least two people must be present, one of whom must be its authorised person in India and the other must be nominated by the foreign company.

According to section 135(3) of the Act, The Corporate Social Responsibility Committee shall,-

(a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company in areas or subject, specified in Schedule VII;

(b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and

(c) monitor the Corporate Social Responsibility Policy of the company from time to time.

Responsibility of Board of Directors (BoD): 

According to section 135(4) of the Act, The BoD of every company on which CSR is applicable shall:

Ø  After considering the CSR Committee's recommendations, approve the Company's CSR Policy and include its contents in the Board report.

Ø  Ensure that the activities included in the company's CSR Policy are carried out by the company; disclose the composition of the CSR Committee in the Board Report; and ensure that the company spends at least 2% of the company's average net profits made in the three immediately preceding fiscal years in accordance with its CSR Policy in each fiscal year. CSR Expenditure shall be limited to CSR projects/programs/activities carried out in India.

The Board shall ensure that the CSR activities are undertaken by the company itself or through- 

(a) a company established under section 8 of the Companies Act, 2013 or a registered public trust or a registered society, registered under section 12A and 80 G of the Income Tax Act, 1961 (43 of 1961), established by the company, either singly or along with any other company; or

(b) a company established under section 8 of the Companies Act, 2013 or a registered trust or a registered society, established by the Central Government or State Government; or

(c) any entity established under an Act of Parliament or a State legislature; or

(d) a company established under section 8 of the Companies Act, 2013, or a registered public trust or a registered society, registered under section 12A and 80G of the Income Tax Act, 1961, and having an established track record of at least three years in undertaking similar activities.

List of CSR Activities:

Schedule 7 provides the list of Activities which may be included by companies in their Corporate Social Responsibility Policies:

(i) eradicating hunger, poverty and malnutrition, promoting health care including preventive health and sanitation Including contribution to the Swatch Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water;

(ii) promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects;

(iii) 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 backward groups;

(iv) ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga;

(v) 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;

(vi) measures for the benefit of armed forces veterans, war widows and their dependents, Central Armed Police Forces (CAPE) and Central Para Military Forces (CPMF) veterans, and their dependents including windows;

(vii) training to promote rural sports, nationally recognised sports, paralympic sports and Olympic sports;

(viii) contribution to the Prime Minister's National Relief Fund or Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES 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;

(ix) (a) Contribution to incubators or research and development projects in the field of science, technology, engineering and medicine, funded by Central Government or State Government or Public Sector Undertaking or any agency of the Central Government or State Government; and 

(ix) (b) Contributions to public funded Universities; Indian Institute of Technology (IITs); National Laboratories and autonomous bodies established under Department of Atomic Energy (DAE);Department of Biotechnology (DBT); Department of Science and Technology (DST); Department of Pharmaceuticals; Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH); Ministry of Electronics and Information Technology and other bodies, namely Defense Research and Development Organisation (DRDO); Indian Council of Agricultural Research (ICAR); Indian Council of Medical Research (ICMR) and Council of Scientific and Industrial Research (CSIR), engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs);

(x) rural development projects;

(xi) slum area development;

(xii) disaster management, including relief, rehabilitation and reconstruction activities.

Penalties for Non-Compliance

According to section 135(7) of the Act, in case of non compliance with CSR norms,

Penalty on the Company:

Upto twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or Rs.1 Crore, whichever is less,

Penalty on every officer of the company who is in default:

1/10th of the amount required to be transferred by the company to such a Fund specified in Schedule VII of the Companies Act, 2013, or the Unspent Corporate Social Responsibility Account, as the case may be, or Rs.2 Lakhs, whichever is less. 

References:

https://cleartax.in/s/corporate-social-responsibility

https://taxguru.in/company-law/corporate-social-responsibility-csr-companies-act-2013.html