Practical Aspects of CSR (Corporate Social Responsibility) Under Section 135 of the Companies Act, 2013 By Bhumika Tuteja


This article clarifies the practical aspects of CSR (Corporate Social Responsibility).

CSR APPLICABILITY:

As per Section 135 of the Companies Act, 2013

Every company having:

  • the net worth of rupees 500 crores or more;
                                 OR
  • turnover of rupees 1000 crores or more
                                OR
  • net profit of rupees 5 crores or more
during the immediately preceding financial year have to constitute CSR committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.

Provided that where a company is not required to appoint an independent director under sub-section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two or more directors.
 
CSR SPENDING:

Every company on whom CSR is applicable as mentioned above, required to spend in every financial year at least 2% of the average net profits of the company made during the three immediately preceding financial years.

E.g. For the balance sheet of 31.03.2018, spending is to be done in 01.04.2018 to 31.03.2019. We will take 2% of the average net profits of the years 2017-18, 2016-17, 2015-16.
 
For calculating Profits u/s 198 for CSR:

  • Net profit to be taken before Tax
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For First Time Applicability

CSR is applicable from 1st April 2014. A company which meets the criteria in any of the preceding three financial years (i.e. 2011-12, 12-13, 13-14) but which does not meet the criteria in the financial year 2014-15 will need to constitute CSR Committee and comply with provisions of 135 (2) to (5) in the year 2014-15.

If section 135 applicable on any company for FY 2014-15, the company has to spend the amount on CSR activities as required by section 135 during the F.Y. 2014-15 and Reporting of the same would be in 2015 Board‘s Report or otherwise state the justification for the same in Board Report.

In this case, the company has to take 2% of the average of net profits for the years 2013-14, 2012-13 and 2011-12 and spending is to be done in 2014-15.
 
Practically, the problem we face while making adjustments in Net Profit for CSR is regarding profit or loss on sale of fixed asset. So this problem has been explained below.
 
(Calculation in case of profit or loss on sale of the fixed asset)

  • In case of loss on sale of fixed asset -
Sale Value of asset – WDV (Written Down Value) of asset = Difference (Loss Value)
It is allowed to be deductible. i.e. already deducted while calculating net profits.
  • No Treatment on Net profit taken for CSR calculation.
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In case of Profit on sale of fixed asset -
 
A. Original Cost of asset – WDV of asset = Difference
B. Sale Value of asset – WDV of asset = Difference (Profit)
 
  • If Difference of B does not exceed Difference of A then credit is to be given      
(i.e. this amount is already added while calculating Net Profits).

No Treatment on Net profit taken for CSR calculation.
 
  • If Difference of B exceeds Difference of A then credit not to be given. It means not allowed to add which is already added in Net Profit.
To be deducted from Net Profit taken for CSR calculation.
 
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