Corporate Social Responsibility refers to business practices involving initiatives that benefit the society. A business’s CSR can encompass a wide variety of tactics, from giving away a portion of company’s proceeds to charity, to implementing “greener” business operations. CSR is becoming more mainstream as forward thinking companies embed sustainability into the core of business operations to create shared value for business and society. Sustainability is not just important about people and plants but is also vital for business success. CSR represents the policies, practices and initiatives a company commits in order to govern themselves with honesty and transparency and have a positive effect on social and economic well-being.
The Ministry of Corporate Affairs has notified Section 135 and Schedule VII of the Companies Act, 2013 as well as the provisions of the Companies ( Corporate Social Responsibility Policy) Rules, 2014 to come into effect from April 1, 2014. With come from April 1, 2014, every company, private limited or public limited, which either has a net worth of Rs 500 crore or a turnover of Rs 1000 crore or net profit of Rs 5 crore, needs to spend at least 2% of it’s average net profit for the immediately preceding three financial years on corporate social responsibility activities. The CSR activities should not be undertaken in the normal course of business and must be with respect to any of the activities mentioned in Schedule VII of the 2013 Act. Contribution to any political party is not considered to be a CSR activity and only activities in India would be considered for computing CSR expenditure.
The net worth, turnover, and net profits are to be computed in terms of Section 198 of the 2013 Act as per the profit and loss statement prepared by the company in terms of Section 381(1) (a) and Section 198 of the 2013 Act. While these provisions have not yet been notified, is has been clarified that if net profits are computed under the Companies Act, 1956 they need not be recomputed under the 2013 Act. Profits from any overseas branch of the company, including those branches that are operated as a separate company would not be included in the computation of net profits of a company. The CSR Rules appear to widen the ambit for compliance obligations to include the holding and subsidiary companies as well as foreign companies whose branches or project offices in India fulfil the specified criteria. There is a need for clarity with respect to the compliance obligations of a company as well as its holding and subsidiary companies.
It is almost impossible for a large company to survive in the absence of a strong CSR policy. CSR kind of relates the business organization with the outside public and the world in a way that the society considers the business organization to be one of their own. Absence of a CSR policy raises a question on the moral code of the company. It is very important for an organization to work towards the betterment of the society and CSR policy lets the people put their trust in the organizations and make them believe that they are working for the people.
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