When does CSR apply to a company?
CSR applies to a company when, in the immediately preceding financial year, its net worth is ₹500 crore or more, or its turnover is ₹1,000 crore or more, or its net profit is ₹5 crore or more. Any one of those three figures is enough.
Which figures bring a company in?
Section 135 tests the company on its own figures. A holding company and a subsidiary are separate tests. A foreign company with a branch office or a project office in India is covered when its Indian business meets the same figures, as the rules apply them. A proposal to change the profit line is not the test until it is passed and notified. The Bill is on the Companies Amendment Bill page.
How much must it spend?
The board makes sure the company spends, in that financial year, at least 2 percent of its average net profit for the three immediately preceding financial years. Net profit for that average is computed under section 198. A company that has not completed three financial years uses the years it has completed. The company gives preference to the local area where it operates. What counts as the spending is on the CSR activities page. Money that is not spent is on the unspent CSR page.
When is a CSR committee required?
The committee has three or more directors, of whom at least one is an independent director. A company that is not required to appoint an independent director forms the committee with two or more directors. A private company with only two directors uses those two. A foreign company uses at least two persons, one of whom is the authorised person resident in India. If the amount to be spent does not exceed ₹50 lakh, section 135(9) lets the board discharge the committee’s functions, and a separate committee is not required.
The committee recommends the CSR policy and the amount to spend, and it monitors the policy. The board approves the policy, discloses it in the board’s report, and sees that the company undertakes the activities. If the company has a website, the policy is placed on it.
When does the duty stop?
If the company does not meet any of the three figures for three consecutive financial years, it need not comply until it meets a figure again. One year below the line does not end the duty.
Frequently asked questions
Four questions cover whether the spend is optional, the three limits, a subsidiary, and the average.
Is CSR still voluntary once the figures are met?
No. Section 135 requires the spend, the policy, and the report. A company that does not meet the figures is outside the section.
Do all three limits have to be met?
No. Net worth of ₹500 crore, turnover of ₹1,000 crore, or net profit of ₹5 crore is enough. Any one of them, in the immediately preceding financial year, brings the company in.
Does a subsidiary follow its holding company’s figures?
No. Each company is tested on its own net worth, turnover, and net profit. A subsidiary is covered only if it meets a threshold itself.
Is the 2 percent taken from last year’s profit alone?
It is 2 percent of the average net profit of the three immediately preceding financial years, computed under section 198. A younger company uses the years it has completed.
Sources
The duty is section 135 of the Companies Act, 2013. Net profit for the 2 percent is computed under section 198. The committee exception for a small spend is section 135(9).