Corporate social responsibility has proved itself to be an integral part of running any organisation. It’s important not to equate CSR with charity. Instead, it should be understood as a partnership to create long-term positive impact for a company’s shareholders. According to the Indian Companies Act 2013, every company with a net worth of at least INR 500 crore, a turnover of at least INR 1000 crore or a minimum net profit of INR 5 crore has to mandatorily spend 2% of the last 3 years’ average net profits on CSR activities.
The CSR Committee
In order to formulate and implement a good CSR strategy, it’s imperative that an organisation sets up a CSR committee. The role of a CSR committee is simple—to create, execute and oversee all CSR activities that the company runs. The committee is also responsible for putting forward an estimate of how much money needs to be set aside for different CSR campaigns. The structure of a CSR committee varies with the kind of organisation you are a part of –
- For a listed public limited company, you’ll need at least 3 people who hold the position of director, of whom one should be an independent director hired specifically for CSR purposes.
- For unlisted companies, you won’t require an independent director.
- If you’re a domestic private organisation, a committee consisting of 2 directors does the job
- For a foreign company running its operations in India, you’ll need 2 directors, one who’s an Indian national and one foreign national nominated by the parent organisation.
Responsibilities Of The Board
While the CSR committee has its own responsibilities, there are certain obligations that need to be fulfilled independently by the Board Of Directors. Their biggest responsibility is approving the CSR policies put forward by the committee and ensuring that they are implemented. The board also needs to disclose the composition of the CSR committee and publish the CSR policy in the annual report. Apart from this, the CSR policy needs to be disclosed on the company’s website.
While planning CSR activities, the committee and the board should preferentially target local areas. If the board or the committee decides to not spend the mandated amount, they need to expound their reasons in detail in the company’s annual report. In addition to this, companies need to ensure that any capacity building expenditure does not exceed more than 5% of the amount spent on CSR activities. Keep in mind that the money spent on CSR isn’t exempt from taxation.
What Counts As CSR Expenditure?
There are no hard and fast rules on what kind of CSR expenditure a company is allowed to make as long as the funds and initiatives are aligned toward,
- Eradication of hunger and poverty
- Gender equality
- Environmental sustainability
- Protecting national heritage
- Armed forces dependants
- Sports activities
- Technology incubators
- Prime Minister’s Relief Fund
- Rural development
- Slum area development
The CSR corpus is a detailed report of all the CSR activities undertaken by a company. Within this document lies the details of the total CSR expenditure, and any income earned or surplus arising through CSR activities. Organisations can pool resources and include this expenditure in their individual corpora. However, any expenditure which directly benefits the employees and their families cannot be included in the corpus. Also not to be included in the corpus are political contributions and any activities that take place in the normal course of work. If the organisation has run any activities through a trust, foundation or a society, these can also be included in the corpus.
Remember, the key to implementing a good CSR strategy lies with your CSR committee. If your committee members have a well-planned strategy in mind, then executing it becomes an extremely easy and satisfying process. This pretty much covers all you need to know about how a business should run its CSR activities in India. For any assistance with your CSR campaigns, reach out to us at Vardaan, and we’ll make sure that your organisation gets the most out of giving back to society.