Significance of Corporate Social Responsibility
Corporate social responsibility (CSR) is a form of self-regulation that aims to make a positive social impact and have social accountability. CSR can be practiced by companies in many ways, including being eco-friendly and sustainable; encouraging equality, diversity, and inclusion at work; treating employees with respect; giving back to the community, and ensuring that business decisions are ethical. CSR has evolved from voluntary actions of individuals to mandatory regulations at the regional, national, and international levels. Employees and customers today are more socially conscious than ever and will spend their money and work for businesses that promote CSR. They can spot corporate hypocrisy. Benefits of Corporate Social Responsibility where you can get the authenticity can be achieved by examining a company’s values, mission, and core issues. Then, determine which initiatives are most in line with the business’s culture and goals. It is worth starting by reviewing the United Nations 17 Sustainable Development Goals. Although goals such as Good Health and Well-Being and Gender Equality apply to all businesses, some specific goals such as Life Below Water and Affordable and Clean Energy might be relevant to certain industries like those in the water technology and energy providers. Recognizing the importance of socially responsible efforts to their customers, employees, and stakeholders, many companies have a focus on four broad types of corporate social responsibility categories. Initiatives for environmental responsibility aim to reduce pollution, greenhouse gas emissions, and sustainable use of the natural resource. Fair labor practices are essential to human rights. This can include funding education programs, supporting health initiatives, and donating to causes. Economic responsibility initiatives are designed to improve the business operations of the company while promoting sustainable practices, such as using new manufacturing processes to reduce waste. These are the business benefits of corporate social responsibilities: CSR can add value to companies by maintaining a positive corporate reputation and/or brand equity. Corporate Social Responsibility is a way for customers to feel good about supporting the company’s causes. Investing in operational efficiency results in operational cost savings and a reduced environmental impact. When they know that their company practices CSR, employees are more likely to stay with the firm for longer periods and be more dedicated. Corporate Social Responsibility-oriented businesses are more likely to be supported by investors. A firm’s regulatory burden can be reduced by having strong relationships with regulatory bodies. 1. Do not choose initiatives that aren’t related. Don’t participate in charities that aren’t related to your core business or violate your company’s ethical standards. 2. Corporate Social Responsibility is not a marketing strategy. You shouldn’t only use corporate social responsibility ideas for marketing purposes. Do not try to do a stunt once in a while. Instead, be consistent with socially responsible business practices. Schmidt stated that employees and customers respond positively to companies that embrace long-term social responsibility. 3. Do not wait for the industry’s catch-up. Don’t delay if you’re considering sustainable activities which aren’t yet legally required. You can set the standard for your industry by adopting socially responsible norms as early as possible and help to refine your processes. CSR initiatives are a win-win for all. Your actions can not only be appealing to socially conscious employees and consumers but also have a positive impact on the world. Introduction Corporate Social Responsibility is now mandatory in India, as per the Companies Act 2013. In exercise of Section 1(3) of Companies Act 2013, 2013 (the Act), the Ministry of Corporate Affairs (MCA), and via a notification dated 27 February 2014, notified the 1st April 2014 that the Act’s provisions of Section 135 (and Schedule VII) will come into effect. Section 135 is read in conjunction with Companies (CSR Policy), Rules, 2014. The Companies (CSR Policy) Amendment Rules, 2021 (” Rules“) were implemented by the Government of India on January 22, 2021. The Rules changed the rules that had been in effect for Companies (CSR Policy) Rules, 2014. (” Existing Rules“. The Rules have changed the definition of Corporate social responsibility (” CSS0_”) to address the pandemic. This clarifies that activities carried out in the normal course of business shall not fall under the CSR umbrella. The Rules make exceptions. Research and development of new vaccines, drugs, and medical devices can be undertaken by any company in the normal course of business. This is known as CSR. Further, the Rules state that activities undertaken outside India are not considered CSR unless they involve training Indian athletes who represent the country at international levels or any other territory of a union. CSR refers to activities that a Company undertakes to fulfill its statutory obligation under section 135, Act, following these provisions. It does not include: (i) Activities carried out in the normal course of company business: Any company that engages in research and develop the activity of new drugs, vaccines, and medical devices may, subject to the following conditions, conduct research and development activity related to COVID-19 in financial years 2020-21 to 2021-22 and 2022-23. (a) Such research and development activities shall take place in collaboration with any institute or organization listed in item (ix), Schedule VII to. (b) Details of such activities shall be included in the Board’s Annual corporate social responsibility reports; (iii) Any activity outside India, except for the training of Indian athletes representing any state or Union territory at the national or international level. (iii). Contribution of any amount directly, or indirectly, to any political party in section 182 under the Act. (iv) Activities that benefit employees of the company, as defined in clause k of Section 2 of Code on Wages 2019, (29 of 2019); (v) Activities supported by companies on a sponsorship basis to derive marketing benefits for their products or services (vi) Activities that are done in fulfillment of any other statutory obligation under any Indian law; The company’s board of directors plays an important role in its CSR activities. Permission to the CSR policy. Assure its implementation. Assuring that the company spends the amount required by law. Public access to the CSR Committee’s composition and the CSR Policy and Projects approved on the Board’s website. The Board must make sure that only the activities mentioned in the policy are carried out. Companies are required to form a CSR committee by Rule 5. Private Company – 2 directors to form CSR Committee Corporate Social Responsibility Committee must be composed of at least 3 directors. At least one of those directors must be independent. A company that is covered by subsection (1) of Section 135 and not required to appoint an unrelated director according to subsection (4) Section 149 under the Act shall have its CSR Committee with no such director. The CSR Committee for foreign companies must include at least two persons. One person shall be an Indian resident authorized to accept notices and other documents on behalf of the foreign firm. The foreign company shall also nominate the other person. A company that spends less than Rs 50,00,000. (Rupees Fifty lakhs only) on Corporate Social Responsibility is exempted from the requirement to form a CSR Committee. In such cases, the CSR Committee will be performed by the board of directors. CSR committees will be required to develop an annual action plan that is consistent with the company’s CSR policies and to recommend it to the board. The CSR Committee will — The Board should be able to formulate and recommend the CSR Policy. Recommendations for the amount of CSR expenditures to be made You should monitor the CSR policies of your company periodically. Form and recommend to the Board an annual action plan according to its CSR policy. It shall include items mentioned in Rule 5(2) of Companies (CSR Policy), Rules, 2014. These functions are performed by the Board for companies that fall under Section 135(9) and are not required to have a CSR Committee. Corporate Social Responsibility Policy outlines the activities that the Company must undertake as per Schedule VII of the Act and the amount they should spend. These activities must not be the same as those that are carried out by the company during its normal business operations. The Board should place the contents of the CSR Policy on the company’s website. The company must follow the policies. The Company can work with other companies to undertake projects, programs, or CSR activities. Each company will report on these programs and projects separately. CSR policies shall be used to monitor projects and programs. CSR policy shall include the following: (a) The list of Corporate Social Responsibility programs or projects that have been approved for execution in the areas or subjects listed in Schedule VII of the Act. (b) How such programs or projects are executed as described in sub-rule (1). (c) The modalities for utilization of funds, and the implementation schedules of the programs or projects; (d) Monitoring and reporting mechanism for projects and programs (e) Details of the company’s needs and impact assessment, if applicable, for any projects. Provided that the Board can alter such plan at any time during the financial year as per its CSR Committee recommendation, on reasonable justification. Companies can gain a wide range of competitive advantages by properly implementing CSR policies, such as: Rule 2(1)(d), Companies (CSR Policy Rules) Rules 2014 defines CSR. The following activities are not eligible for CSR: Activities carried out in the normal course of business for the company. Activities outside India except for the training of Indian athletes representing any state/UT at the national level or India international level Any amount contributed, directly or indirectly, to any political party as per Section 182 of this Act Activities that benefit only employees and their families Sponsorship activities for deriving marketing benefits for products/services Activities to fulfill statutory obligations under any Indian law. Act of 2013: Schedule VII does not cover activity The Board will ensure that CSR activities are carried out by the company or through – (a) A company established under Section 8 or a registered trust or society registered under section 12A or 80 G of the Income Tax Act, 1961 (43of 1961), and established by the company either alone or in conjunction with another company. (b) A company that is established under Section 8 or a registered trust, or a registered society, as established by the Central Government and State Governments; (c) Any entity created under an Act by Parliament or a State legislature (d) A company that was established under Section 8 of the Act or a registered trust or society registered under section 12A or 80G of the Income Tax Act 1961 and with a track record of at minimum three years of similar activities. A company can also work with other companies to undertake projects, programs, or CSR activities. In this way, the Corporate Social Responsibility Committees of each company can report separately on these projects and programs. The act states that the company must give preference to the local area and areas surrounding its operations It is becoming more difficult for businesses like e-commerce and process-outsourcing companies to identify the local area for various activities. The Act’s preference for the local area is a directory, and it is not mandatory. Companies must balance national priorities with local area preferences. Calculation Corporate Social Responsibility policy: 2%* Average net profits during the three preceding financial years To determine the amount of CSR spending, the average net profit must be calculated according to Section 198 of this Act. Tax treatment CSR expenditures by companies cannot be claimed as business expenses as they are not incurred for business purposes. CSR spending is not exempt from tax in any way. CSR expenditures are not included in business expenses according to the Finance Act of 2014. CSR contributions cannot be monetized and in kind. There are many ways to incur CSR expenses CSR expenses can be made in many ways: The ‘Activities route’ is a direct method by which a company undertakes Corporate Social Responsibility programs or projects as specified in Schedule VII of the Act. This can be done either by the company or by engaging implementing agents as described in Companies (CSR Policy Rules), 2014. “Contribution to funds route” allows contributions to different funds as described in Schedule VII of the Act. Contribution to incubators and R&D projects, as specified in item (ix)(a), and contribution to institutes/organizations, engaged in research and development activity, as specified under item (ix)(b) of Schedule VII of the Act. Does spending CSR funds on COVID-19-related activities count as CSR? The Ministry of Corporate Affairs (MCA), clarified that CSR funds used for COVID-19-related activities are CSR expenditures. The MCA clarified that funds can be used for COVID-19-related activities under Schedule VII items (i and xii). The company’s COVID-19 vaccinations for employees and their families are not considered CSR activities. They may also organize vaccination drives for larger groups, which they can include in their CSR spending for the financial year. The Act provides for CSR contributions by naming funds in Schedule VII: Contributions to the following funds are admissible for Corporate Social Responsibility expenditure Swachh Bharat Kosh Clean Ganga Fund Prime Minister’s National Relief Fund Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund). Any other fund established by the Central Government, notified by the Ministry of Corporate Affairs, to support socio-economic development, relief, and welfare of Scheduled Castes, Scheduled Tribes, and other backward classes, women, and minorities All unutilized CSR funds at the end of a financial period shall be transferred following the following: 1 Transfer to Unspent CreditSR Account: If the amount is related to an ongoing project following the Corporate Social Responsibility policy, the unspent amount shall transfer within 30 days of the end of the financial year to the account designated “Unspent Corporate Responsibility Account”. This amount should be used within the next three financial years, following the company’s CSR policies. These amounts must be used within the 3 years. 2) Transfer into a Schedule VII Fund: If the amount is not related to an ongoing project, i.e. it is unallocated funds for CSR, the unspent amount shall, within six months, be transferred to any fund listed in Schedule VII (such as the PM National Relief Fund, PM CARES Fund or disaster management fund), etc. ). In the future, the Government could designate funds in Schedule VII for companies that wish to transfer unused CSR funds. A “continuing project” is a CSR project that has a maximum duration of four financial years, inclusive of the year it was started. Any surplus resulting from Corporate Social Responsibility activities must be: (a) Expended on the same project that gave rise to the surplus (b) Transferred into the Unspent CSR account of the company (c) Transferred into a fund specified in Schedule VII. A company that has spent more than the 2% CSR requirement can offset such excess amounts against CSR spending in the next three financial years provided that the board of directors approves the same. These excess amounts do not include surplus from CSR activities. WHAT’S CHANGED? For Indian companies, the BOD Report shall contain an annual report on CSR activities according to the Annexure For foreign companies, the Balance Sheet filed under Section 381.1(b) of this Act must include an Annexure containing information on CSR. Procedure (a) Any entity covered by sub-rule (1) that plans to engage in any CSR activity must register with the Central Government electronically. This sub-rule does not apply to CSR programs or projects approved before the 01st of April 2021. (b) The entity must sign and submit Form CSR-1 electronically. It shall be verified digitally either by a Chartered Accountant or a Company Secretary or a Cost Accountant. (c) The system will automatically generate a unique CSR registration number upon submission of Form CSR-1 to the portal. CSR 2 Companies that fall under Section 135 of 2013’s Companies Act must file Form CSR-2 (report about Corporate Social Responsibility). Due-Date i. F. Y. 2020-21: Separately on or before 31 March 2022 CSR 1 Applicability The company may incorporate a registered society, registered trust, section 8, or registered public trust under Section 12A or 80G of the Income Tax Act 1961. A registered company under Section 8 of the Act, is a registered society established by the Central Government or State Government. Entities are created under the authority of a State Legislature, an Act of Parliament. Section 8 company, registered society or registered public trust, or company registered under Section 12A, 80G, Income Tax Act, with a track record of at least 3 years of similar activities. Visit the MCA portal to apply and click on the “MCA Services” tab. Select the option “e-Filing” from the drop-down menu and click on the “Company Forms download” option Scroll down to the Incorporation services’ heading, and click on the? Form CSR-1′ row under the? e-Form to download the form You can download the Form CSR-1 in a zip file Extract the Corporate Social Responsibility pdf form ‘Form_CSR-1’ from the zip folder. Once you have extracted the PDF form CSR-1, open it and fill it out. In practice, a Chartered Accountant or Company Secretary (CS) must verify the e-Form CSR-1 digitally Once the form has been verified by a CA or CS, you can submit Form CSR-1 via the portal. After submitting the form, the system will generate a unique CSR Registration number. Copied of the registration certificate for the entity Copy of PAN for the entity If applicable, a copy of exemption certificate 12A or 80G NGO Darpan ID, where applicable DSC for the authorized signer The authorized person signing the form Company Corporate Social Responsibility Policy CSR Report for Companies Information about subsidiaries and other entities What types of corporate social responsibility can a business practice?
1. Environmental responsibility
2. Responsibility for human rights
3. Philanthropic responsibility
4. Economic responsibility
Benefits Of Corporate Social Responsibility
1. A stronger brand image, reputation, and recognition
2. Customer loyalty and sales increase
3. Operational cost savings
4. Keep key and skilled employees
5. Access to funding is easier
6. Reduction in regulatory burden
What to Avoid when Creating a Socially Responsible Business Model?
Definition of Corporate Social Responsibility
Corporate Social Responsibility Board of Directors: Role
CSR Committee
Functions Corporate Social Responsibility Committee
CSR policy
Activities do not qualify as eligible Corporate Social Responsibility activity:
Implementation of Corporate Social Responsibility
Is it mandatory for companies they carry out CSR within their local communities?
CSR Expenditure
Unspent CSR amounts
Treatment for surplus funds
Excessive CSR Spends
Corporates
CSR Governance
CFO certification for Corporate Social Responsibility fund disbursal or utilization Create a CSR policy that is more specific, detailed, and well-defined. CSR Committees have broader roles and responsibilities, including the formulation of an annual action plan.
CSR spends
Consolidates clarifications of exclusions, but makes exceptions for Covid-19-related R&D. Permission to acquire/create capital assets, subject to the assets being owned either by the NGO, project beneficiaries, or a public authority. Administrative overheads are still subject to a cap of 5% of CSR expenditures. However, it now excludes direct costs associated with project design, implementation, monitoring, and evaluation.
Unspent CSR funds
Transfer to an unspent Corporate Social Responsibility account or fund listed in Schedule VII of the Companies Act within the prescribed timeframe
Mandatory Assessment of Impact
Companies that have spent more than Rs 10 crore in the last three fiscal years are required to mandate an impact assessment for projects with an overspend of more than Rs 1 crore. Costs of impact assessment are limited to Rs. 50 lakhs, 5% CSR expenditures.
International Organizations
You can now access the expertise of UN-recognized organizations for project design and monitoring, evaluation, or capacity building.
NGOs
Mandatory registration CSR
All implementing agencies must apply for and receive a unique CSR registration Number starting April 1, 2021.
Income Tax Registrations
CSR implementing agencies must be registered under Section 12A or Section 80G of the Income Tax Act.
Corporate Social Responsibility Reporting
Filing Process
Documents Required For Corporate Social Responsibility Registration
Why is CSR so important?
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