An introduction to Corporate Social Responsibility (CSR) in India

Introduction

Corporate Social Responsibility (CSR) is a fundamental obligation for companies operating in India. Enshrined in the Companies Act, 2013, and detailed further in the Companies (Corporate Social Responsibility Policy) Rules, 2014, CSR mandates corporate contributions towards social, economic, and environmental welfare. Recent amendments in 2021 have reshaped CSR compliance, making the framework more robust and transparent.

This diary chapter provides a complete overview of CSR requirements, amendments, and implications for companies operating in India.

1. Overview of CSR in India

Corporate Social Responsibility is governed by Section 135 of the Companies Act, 2013. It mandates certain companies to undertake CSR activities aimed at improving society. CSR refers to the practices and policies undertaken by companies to have a positive influence on society, the environment, and the economy. The activities should align with Schedule VII of the Act, which specifies areas such as:

• Promotion of education

• Environmental sustainability

• Gender equality

• Health and sanitation

• Poverty alleviation

2. Applicability: Which Companies Need to Comply with CSR?

The CSR requirements apply to companies meeting any of the following thresholds in a financial year:

• Net worth of ₹500 crore or more

• Turnover of ₹1,000 crore or more

• Net profit of ₹5 crore or more in the immediately preceding financial year

Eligible companies must:

1. Form a CSR committee.

2. Spend at least 2% of their average net profits from the preceding three financial years on CSR activities.

3. Key CSR Rules and Provisions

CSR Committee:

The CSR committee is a core body that:

• Comprises at least three directors, with at least one independent director.

• Proposes and recommends a CSR policy to the company’s board​.

CSR Policy:

A company’s CSR policy must outline:

• The projects or programs it intends to undertake.

• The modalities of execution, implementation schedules, and monitoring mechanisms.

Companies can execute their CSR activities either independently or through:

• A company under Section 8 of the Act,

• A registered trust or society,

• Public trusts or societies registered with the government​.

4. The 2021 CSR Amendments: What Changed?

The 2021 amendments brought significant updates to CSR provisions, enhancing transparency and accountability​:

1. CSR Definition Expanded: CSR now includes activities that are:

   • Carried out as per the legal obligations under Section 135.

   • Excludes activities related to the company’s normal business, except for COVID-19-related research (for FY 2020-21 to 2022-23)​.

2. CSR Implementation:

   • Companies can now collaborate with international organizations for project design and evaluation​.

   • The CSR-1 registration form was introduced, which must be completed by all entities planning to conduct CSR activities from April 2021​.

3. Unspent CSR Funds:

   • Unspent amounts on CSR activities must be transferred to specific funds (such as the PM CARES Fund) within six months​.

   • For ongoing projects, companies have a longer period for compliance.

4. Impact Assessment:

   • Companies with an annual CSR spend of ₹10 crore or more must conduct impact assessments for their CSR projects​.

   • The report should be made public as part of the CSR report.

5. Penalties for Non-Compliance:

   • Non-compliance with CSR spending will result in fines and penalties. Unspent funds must be transferred to government-specified funds​.

5. CSR Reporting and Disclosure

Annual CSR Reporting:

• CSR activities and financials must be disclosed annually in the Board’s Report, ensuring transparency.

• Companies must include:

  • The CSR policy,

  • The composition of the CSR Committee,

  • Details of CSR projects undertaken,

  • The amount spent​. and

  • Impact assessments, if applicable
    

Moreover, the Companies (Amendment) Act, 2020, also introduced provisions for CSR reporting on company websites.

6. What’s New in CSR Implementation?

• Collaboration with International Organizations: Companies can engage international organizations for designing, monitoring, and evaluating CSR projects, as well as for capacity building​.

• Surplus from CSR Projects: Any surplus arising from CSR activities must be plowed back into CSR initiatives or transferred to the unspent CSR account​.

7. CSR as a Business Imperative

The evolution of CSR regulations reflects the Indian government's intent to strengthen corporate contributions to societal growth. Companies are now expected not only to comply with these regulations but also to ensure that their CSR initiatives have a positive impact. The recent amendments in CSR rules reflect India’s commitment to ensuring that corporate social responsibility becomes a key part of business strategies. Compliance is now more transparent, with a focus on long-term impact and accountability. Companies must stay updated with these changes to not only meet legal requirements but also make a meaningful contribution to societal development