CSR, Global impact, Indian scenario, clause 135, companies rules 2014, FAQs & Guidance notes issued by ICAI.

1. Corporate Social
Responsibility
- Aadhit B Balaji
National Convention | ICAI | BOS | WIRC
Aurangabad | 4th & 5th July

2. In Nutshell
The Global Aspect - CSR
CSR Hierarchy Model & Triple
bottom line
Clause 135 of Companies act, 2013 &
Companies (CSR policies) rules, 2014
Guidance note on CSR – Issued by ICAI
CSR Reporting | CSR & SMEs | Clause 55
of listing agreement
CSR from business perspectives &
positives of CSR business benefits
Famous CSR projects/programs in India –
Top successful Cos practicing CSR

3. The Global Aspect – CSR
• CSR related concepts
– Triple bottom line
– Corporate citizenship
– Philanthropy
– Business responsibility
– Corporate sustainability
World Business Council for Sustainable
development - “the continuing
commitment by business to contribute
to economic development while
improving the quality of life of the
workforce and their families as well as
of the community and society at large.”

4. Providing Support to
organisations for
Social Cause
Water & Energy
Consumption,
Protection of trees
and Pollution and
Waste management
CSR – Triple Bottom Line (People – Planet – Profit)
Profit (CSR activities)
Planet
People
Natural Disaster
Illiteracy
Support to
Schools
Employability Skill
development
Respect and Humanity
Supporting the
educational efforts of
the schools
Employee
volunteerism
Road
Accidents
Communica
ble Diseases

5. CSR – Hierarchy Model
Ethical Model
(1930-1950s)
Statist Model
(1950s-1970s)
Liberal Model
(1970s-1990s)
Stakeholder
Model
(1990s – To
Present)
Stakeholders Model:
The evolution of CSR in India has followed a chronological order of four thinking
approaches, though the stakeholder model came into existence during 1990s as a
consequence of realisation that with growing economic profits, businesses also have
certain societal roles to fulfil. The model expects companies to perform according to
“triple bottom line” approach. The businesses are also focusing on accountability and
transparency through several mechanisms.

6. Benefits of a CSR programme in a Global Aspect
(Companies Perspective):
A Good CSR practices can only bring in greater benefits by fostering the below
aspects, (two main)
1. Attracting and retaining employees – Increasing the employee morale and
sense of belonging to the company
2. Enriching the corporate reputation – positive image and branding benefits are
created to place the company as a
responsible corporate citizen in the
world market.
3. Cost savings
4. Revenue increase from higher sales
and market share
5. Brand Value
6. Can avoid negative press and customer
boycotts (risk reduction/management)

7. Corporate Social Responsibility – In India
Timeline - Companies Act, 2013 | Companies (CSR policies) Rules, 2014
27th Feb 2014 - Notification pronouncing CSR Policy Rules – effective 01.04.2014
27th Feb 2014 - Notification amending Schedule VII – effective 01.04.2014
28th Feb 2014 - Notification implementing Sec 135 & Sch VII w.e.f. 01.04.2014
31st Mar 2014 - Corrigenda explaining an entry Sch VII
18th Jun 2014 - Cir No 21/2014 on Sch VII & certain activities
6th Aug 2014 - Insertion of new activity for CSR
15th May 2015 - Guidance note Issued by ICAI For
accounting for expenditure on CSR.
High level committee to monitor CSR

8. Applicability of CSR provisions in India
Companies Act,
2013 - CSR
Provisions
Annual Turnover
of 1000 Crore or
more
Sec 2(91)
NetWorth of 500
Crore or more
Sec 2(57)
Net Profit of 5
Crore or more
Sec 2(1) (f)
During any of
the three
preceeding
FY.
Cir Dt
(18.06.2014)
If Applicable, Minimum 2% of “Average Net
Profit” to be spent on CSR activities

9. Definitions as per Companies Act, 2013
Meaning of ‘Average Net Profit’?
It is the average of the net profits of the Company made
during the three immediately preceding FYs.
Net Profit does not include;
(i) profit of overseas branches/companies and
(ii) dividend from CSR compliant companies.
Is Net Profit – PBT or PAT??
Explanation to S-135 read with S-198 & S-198(5) states that
Income Tax shall not be deducted in computation of
profits

10. CSR Committee
Formation | Policy framework | Policy Implementation | Control on
Expenditures
Networth >= 500 Crore
(or)
Turnover > =1000 Crore
(or)
Netprofit > =5 Crore
Role Of
Directors
- Form a CSR Committee
- Approving a CSR policy also
Additions & Deletions.
- Implementation
- 2% Expenditure
- Disclosure Aspects
- Business Responsibility Report.
CSR
Committee
- Three or more directors with
atleast one Independent director
- Formulate and recommend a CSR
policy to the board
- Recommend activities and the
amount to be incurred
- Monitor the CSR from time to
time
NEXT STEP AFTER
APPLICABILITY

11. FAQs on CSR applicability & committee Composition provisions
As per the notification dated 27.02.2014 by MCA to clear ambiguition
1. Provision requires the company to form a CSR committee with Three or more
directors with one independent director.
a. What if an unlisted public company or private company is not
required to have an Independent Director as per the act?
Such class of companies can constitute CSR Committee without
such independent director.
b. What if a private company has only two directors?
A private company with just two directors in its board shall
continue to constitute a CSR Committee with such two directors.
2. Provisions related to the applicability of CSR provisions to its holding,
subsidiary and a Foreign company?
Every company including its holding or subsidiary, and a foreign company
defined under clause (42) of section 2 of the Act having its branch office or
project office in India, which fulfils the eligibility criteria.
3. What if the applicability criteria for the CSR do not hit subsequent years?
a. CSR requirements still apply till three consecutive years.
b. It will cease to apply, in case your financial figures skip Applicability
Criteria for three consecutive FYs
c. No CSR compliance till you hit the Applicability Criteria again.

12. CSR Implementation through Special purpose vehicle
• By establishing a SPV in the form of registered Trust/Society/Section 8
Company
• Through such entities established by the Holding/Subsidiary/Associate
Company*
• Through third party trust/society/Section 8 company;
• Subject to the fact that the aforesaid Cos should have track
record of three years with such similar activities as
enumerated in Notification vide dated 27.02.2014 on CSR
expenditures.
• Collaborating or pooling their resources with other companies.
*Sec-2(6): Associate Co. means a company over which another has
significant influence (20% including JV); other than subsidiaries

13. CSR Expenditures as notified in Sch VII on 27th Feb 2014.
Qualified CSR expenditure.
1. Eradicating hunger and poverty and malnutrition, promoting preventive
healthcare and sanitation (Including contribution to Swach Bharat Kosh setup
by Central Govt) – Notification Dt 24.10.2014 and making available safe
drinking water.
2. Promoting education; including special education and employment enhancing
vocation skills especially among children, woman, elderly and the differently-
abled and livelihood enhancement projects
3. 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.
4. Ensuring environmental sustainability, ecological balance, protection of flora
and fauna, animal welfare, agro-forestry, conservation of natural resources and
maintaining of quality of soil, air and water (Including Contribution to Clean
Ganga Fund setup by Central Govt.) – Notification Dt 24.10.2014.

14. CSR Expenditures as notified in Sch VII on 27th Feb 2014.
Qualified CSR expenditure.
5. Contribution to the Prime Minister's National Relief 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.
6. Protection of national heritage, art and culture including restoration of
buildings and sites of historical importance and works of art; setting up of
public libraries; promotion and development of traditional arts and
handicrafts.
7. Measures for the benefit of armed forces veterans, war widows and their
dependents.
8. Training to promote rural sports, nationally recognised sports, and
Paralympics sports and Olympic sports
9. Contributions or funds provided to technology incubators located within
academic institutions which are approved by the Central Government
10. Rural development projects
11. Slum developments projects (As inserted by Notification Dt 06.08.2014)

15. CSR Expenditures – Those do not qualify for.
 CSR activities should be undertaken by the companies in project or programme
mode. One-off events such as marathons, awards, charitable contribution,
advertisement, sponsorships of TV programmes etc. would not be qualified as part
of CSR expenditure.
Expenses incurred by companies for the fulfilment of any Act or Statute of
regulations (such as Labour Laws, Land Acquisition Act etc.) would not count as
CSR expenditure under the Companies Act.
 The CSR efforts that benefit only the employees and their families
 Contribution to any political party.

16. FAQs on - CSR Expenditures – Accounting & Reporting
1. Whether provision for Unspent amount required to be created?
a. Section mandates to spend atleast of 2% of ANP
b. If Company fails so – specify the reason in the board report.
c. Provision not to be made in respect of Exp not spent in such year.
d. Further, In case any liability undertaken in respect of any contractual
obligation , then in accordance with GAAP, such amount to be provisioned
and needs to be recognized in the financial statements.
e. As per Schedule III of companies act 2013, further movements in the
provision should be shown separately.
2. Can a company carry forward its expenditure which has expended more than
the requirement (2%)?
The excess amount is not eligible for any carry forward to the next subsequent
yrs.

17. FAQs on - CSR Expenditures – Accounting & Reporting
3. Recognition and disclosure in case of companies carrying on CSR activities on their
Own;
a. Expenditure (revenue in nature) as per Sch VII – to be charged to Statement of
P&L as per Sch III.
b. In case of capital nature expenditures – gives rise to an asset – “CSR asset” for
control purpose. Further, in case of any surplus from CSR asset, the same should not
be included in the business profits as per Rule 6(2) of the Companies (Corporate Social
Responsibility policy) Rules, 2014.
4. How Income earned from CSR projects/programs are recognized?
Shall be recognized in the statement of profits & loss – to be recognized as
liability immediately since it’s not a business profit and subsequently charged to P&L.
Accordingly, these surplus would not form part of 2% bracket.
5. Presentation and Disclosure in respect of CSR in Financial statements;
For a better financial reporting and in line with the requirements of Schedule III, it is
recommended that all CSR expenditures are recognised as expense as a separate line
item in the statement of profit and loss as “CSR Expenditures”. Further, relevant note
must disclose the various heads of expenses classified under the CSR activities.

18. Business Reporting Responsibility (BRR)
• New Clause 55 inserted in Listing Agreement; effective from FY ending on or
after 31.12.2012.
• Listed entities to include Business Responsibility Report as part of their
Annual Reports describing their initiatives from an environmental, social and
governance perspective (ESG Initiatives)
• Initially applicable to top 100 companies based on Market Capitalisation
• BRR template has been provided by SEBI and to form part of annual report.
• BRR in line with National voluntary guidelines (NVG) which has nine
principles.
• SEBI has also encouraged other listed companies to volunteer to disclose
EVG in BRR format.
SEBI Circular – 13th Aug 2012

19. CSR and SMEs
Small and Medium enterprises, as the name purports the
contribution of their role in the economy is predominant. Their share towards
employability of the workforce as well as the output is more than 40% of the
total.
Therefore it must be supplemental for the government to
expect the SMEs to also contribute towards the CSR activities by injecting a
clause, Net profit more than 5 Crores INR, which might involve most of the SMEs
in the ambit of the CSR clause 135, of Companies act, 2013.
With the introduction of the new Companies Act, 2013, the SME’s approach to
CSR has to be modified while keeping operational costs low. One viable
alternative is to pool resources with other
SMEs in the cluster and create joint CSR
programmes managed by a single entity.
This collaboration can be formed within
the units in a cluster as they interact with
the same communities and have
already established associations that
cater to the business needs of the units.

20. CSR – Penal Provisons
• Failure to disclose in the Board’s Report attracts
minimum fine of Rs. 50,000 upto Rs. 25 lakhs to
the Company. Additionally, every officer in
default’ is also punishable with imprisonment
for 3 years apart from the fine too [sec 134(8)].
• Defaults where for no penalty is indicated -
Company and every office in default
(i) onetime fine of upto Rs. 10,000/- and
(ii) Rs. 1,000/- per day in case of continuing
default
[Sec 450: residuary penal section.]

21. CSR – Taxation aspects
1. Whether the expenditures incurred related to CSR shall be qualified as
expenditure deducted with the purview of Income tax Act, 1961 ?
The answer is NO.
Section 13 of the Finance Bill, 2014 amends Sec-37 of the IT Act relating to
general expenditure by inserting an Explanation II to sub-section (1) of
Section 37 which states that:
‘….. it is hereby declared that for the purposes of sub-section (1), any
expenditure incurred…..on the activities relating to CSR referred to in sec-
135 of Companies Act, 2013 shall not be deemed to be an expenditure
incurred…. for the purposes of the business or profession.’
“If expenses qualify as tax deduction it would amount to subsidising around one-
third of such expenditure. “

22. Corporate Social Responsibility
Top Companies with Best CSR policies and
implementation in the world.
Microsoft
Daimler
Apple
BMW
The Walt Disney
Google
Colgate
Sony
VW

23. Top 10 companies with the best CSR regulations in India
Tata Steel
It comes out with the Human
Development Index (HDI), a
composite index of health,
education and income levels, to
assess the impact of its work in
rural areas. Health care is one
of its main concerns. The Tata
Steel Rural Development
Society aims to improve
agricultural productivity and
raise farmers’ standard of
living.
Mahindra &
Mahindra
- Supports education of
over 75,000
underprivileged girls.
- Scholarships to 83,245
students so far.
- Also works for causes
related to environment,
health care, sports and
culture.
Ashok Leyland | Tata Motors | Maruti Suzuki | ITC | L&T | SAIL |
Infosys | Coca-cola | ONGC | IBP | IOC

24. Thank You
THE INSTITUTE OF
CHARTERED ACCOUNTANTS
OF INDIA | WIRC
NATIONAL CONVENTION
AURANGABAD
JULY 4TH & 5TH