11-Jan-17 SL. No. PARTI TICULARS CULARS PAR ART-A BAC ACKGRO - - PowerPoint PPT Presentation

Presentation On

Legal aspect

OF

CORPORATE SOCIAL RESPONSIBILITY

11-Jan-17

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• SL. No.

PARTI TICULARS CULARS PAR ART-A BAC ACKGRO ROUND/ UND/ NEED/ / ORIGIN GIN OF CSR PART-B CSR( ( CORPO PORATE TE SOCIAL IAL RESPO PONSIB IBILITY LITY) ) LAW-20 2013 13 1. Provisions of Companies Act, 2013 2. C.S.R. Committee 3. Annual Reporting of CSR Spend 4. Tax Impact under various types of CSR Activities PART-C IMPLEME MENT NTATI TION ON OF CSR AGEND NDA PART-D CONCL NCLUSIO USIONS NS

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‘A commitment to improve community well being through discretionary business practices and contributions of corporate resources’. – Philip Kotler and Nancy Lee (2005) Corporate social responsibility encompasses not only what companies do with their profits, but also how they make

• them. It goes beyond philanthropy and

compliance and addresses how companies manage their economic, social, and environmental impacts, as well as their relationships in all key spheres of influence: the workplace, the marketplace, the supply chain, the community, and the public policy realm.

• Harvard University

‘A multi layered concept that can be differentiated into four interrelated aspects – economic, legal, ethical and philanthropic responsibilities’. – Archie Carroll (1991) ‘A way companies manage the business processes to produce an

• verall positive impact on

society.’ – Mallen Baker, Founding Director, Business Respect

Corporate Social Responsibility is the

continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as

• f the local community and society at

large” Lord Holme and Richard Watts

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Mortality Rate is 53 per 1,000 that a newborn baby will die before reaching age five, if subject to age- specific mortality rates

• f the specified year

Literacy rates are 82.14% for men and 65.46% for women Worldwide, infectious diseases such as waterborne diseases are the number one killer of children under five years old

India ranks last among the world‘s 20 biggest economies in terms of air pollution levels

29.8% population is below poverty line Indian census statistics reveal that the sex ratio in India slumped from 976 girls per 1000 boys in 1961 to 914 in 2011 Asia has maximum numbers of polluted rivers than anywhere else in the world The unemployment rate is estimated to be 8.8% In India alone, the single largest cause of ill health and death among children is diarrhea, which kills nearly half a million children each year

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Quoran States They ask thee what they should spend (In charity). Say: Whatever ye spend that is good, is for parents and kindred and orphans and those in want and for

• wayfarers. And whatever ye do

that is good, -Allah knoweth it well. Guru Granth Sahib states ―He who eats what he earns through honest work and shares with others, he alone O Nanak recognises (follows) the true path in life.‖ Bhagvad Gita states Charity which is given without consideration of anything in return, at a sanctioned and holy place and at an astrologically auspicious time, given as a matter of duty to one qualified; that charity is regarded as

• f the nature of goodness.

Bible states Do not neglect to do good and to share what you have, for such sacrifices are pleasing to God.

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As per Section 135 of the Companies Act 2013 (Applicable from Financial Year 2014-15), every Company(including Private Company) having given particulars during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of 3 or more directors (including one independent director at least, subject to exemptions.

Turnover of at least Rs.1,000 crores

Net worth of at least Rs.500 crores

Net profit of Rs. 5 crores

A Private. Company (only 2 directors on its Board)- 2 Directors Foreign company One person (i.e. person resident in India authorized to accept on behalf of the company service of notices or

• ther documents served on the

company) and another person shall be nominated by the foreign company Unlisted Company/ Private Company (not required to appoint Independent Director)- 3 or more directors without any Independent Director Other Companies: 3 or more directors, with at least 1 Independent Director

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Formulation and recommendation

• f CSR Policy to

Board

Ensure & Monitor Compliance of CSR Policy through preparation of Transparent Monitoring Mechanism for implementation Approve the CSR Policy for and disclose contents of such Policy in its report and also place it on the company‘s website

Recommend the amount

• f expenditure and

ensure that at least two per cent of the average net profits is spent by the company in every Financial year

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CSR Policy should specify that the corpus would include the following: (i) 2% of the average net profits(Profit before tax) (ii) Any income arising there from, (iii) Surplus arising out of CSR activities. Following should be mentioned in CSR Policy: Surplus arising out of the CSR activity will not be part

• f business profits of a company. Also, any surplus

arising out of CSR Activities will be re-directed towards CSR Activities and not the business of the company.

Transparent monitoring mechanism

Modalities

• f

execution

List of CSR projects/programmes/ activities to be undertaken as specified in Schedule VII of the Act

Expenditure/budget for the CSR Activities

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• The Board shall ensure that the amount to

be spent ,in every Financial Year shall be, at least 2% of the Average Net Profit(Profit before tax) of the Company made during the 3 immediately preceding financial years, in pursuance of its CSR Policy.

AMOUNT OF CSR EXPENDITURE

• Once a company is covered under the provisions of CSR as

per sub section (1) of Section 135, the company will have to comply with the rules for three consecutive financial years, even if in the subsequent years, these rules do not apply to

• them. However, any company that ceases to be covered

under Section 135 of the Act for three consecutive financial years will not be required to comply with the provisions relating to CSR till such time it meets the criteria specified in sub section (1) of Section 135.

APPLICABILITY OF CSR PROVISIONS

ACTIVITI VITIES ES INCLUD UDED ED ACTIVITI VITIES ES EXCLUD UDED ED

Approved by the board of directors, and on the recommendation of the CSR Committee (must be cited in the CSR Policy) Political contribution Building Capacity of CSR team (up to 5 percent of CSR expenditure), through institutions with an established track record of at least three years Solely for benefit of employees and their families Contribution to corpus Activities that are in pursuance of normal course of business of a company. Any surplus earned through CSR Activities (or interest earned on corpus funding) will, however, need to be plowed back as additional CSR spend.

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Schedu dule e VII Activiti vities es-Activities which may be included by companies in their Corporate Social Responsibility Policies:

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Eradicating extreme hunger & poverty Reducing child mortality and improving maternal health Employment enhancing vocational skills Contributions to Prime Minister Fund or any

• ther fund set up by the

Central Government or the State Governments Social business projects such other matters as may be prescribed

Promotion of education

Ensuring environment sustainabilit y Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases Promoting gender equality and empowering women

Composition of the CSR Committee

Responsibility statement

• f CSR Committee stating

that the implementation and monitoring of CSR Policy is in compliance with CSR objectives and policy of the company.

Details of CSR spent during the financial year

Disclosure of Reasons of

not spending the prescribed CSR Expenditure Average net profit

• f the company for

the last three financial years Brief outline of the company‘s CSR Policy Overview of projects or programs to be conducted Prescribed CSR expenditure - 2%

• f the average net

profits of last 3 Financial Years CSR Policy should be displayed on the company website

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Total Revenue



Less: Extraordinary income(if included above)

1.

Profit from Premium of shares/Debentures

2.

Profit from sales of Forfeited shares

3.

Profit in terms of capital natures (in terms of undertaking of company or any part of thereof)

4.

Profit from the sale of immovable property/fixed assets/any capital nature

5.

Any surplus change in carrying amount of an assets or liability recognized in equity reserves Total al Reve venu nue afte ter r extra raord

• rdinary

inary income me



Less: Total Expenditure including Operating Expenses (i.e. Raw material expenses, stock adjustments, wages, selling and admin expenses, interest, depreciation) Profit fit before fore Tax



Add: if debited in Profit & Loss A/c

1.

Income tax and any other tax

2.

Compensation, damages or other payments made voluntarily

3.

Loss of capital natures including loss on sale of undertaking of company or any part of thereof

4.

Any transfer to assets/liabilities revaluation reserves Net Profit

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The Finance Act, 2014 has proposed that CSR expenditure shall not be allowed as expenditure under section 37 of Income Tax Act, 1961. However, any CSR expenditure which is allowed as deduction under other sections such as section 35, 35AC, 80G etc. is permissible. Companies which are subject to the Minimum Alternate Tax (‗MAT‘) are likely to get benefit under MAT, As MAT is calculated on Book profits of the company and CSR expenditures are to be debited in profit & loss account which will ultimately result in reduced MAT liability.

As per Section 80G of the Income tax Act,1961regarding Deduction in respect of donations to certain funds, charitable institutions, etc. it states as follows: ―In computing the total income of an assessee, there shall be deducted, in accordance with and subject to the provisions of this section,-- in a case where the aggregate of the sums specified in subsection (2) includes any sum or sums of the nature specified in sub- clause (iiia) or in sub- clause (iiiaa) or in sub- clause (iiiab)] or in sub- clause (iiie)] or in sub- clause (iiif)] or in sub- clause (iiig)] or sub- clause (iiih) or] in] sub- clause (vii) of clause (a) thereof, an amount equal to the whole of the sum or, as the case may be, sums of such nature plus fifty per cent of the balance of such aggregate; and] in any other case, an amount equal to fifty per cent of the aggregate of the sums specified in sub- section (2)‖

As per Section 35 AC of the Income Tax Act,1961 regarding Expen enditure ure on eligibl ble e projec jects s or schemes, emes, it states as follows: ―Where an assessee incurs any expenditure by way of payment of any sum to a public sector company or a local authority or to an association or institution approved by the National Committee for carrying out any eligible project or scheme, the assessee shall, subject to the provisions of this section, be allowed a deduction of the amount of such expenditure incurred during the previous year‖.

7

Donations paid to specified institutions qualify for tax deduction u/s 80G but is subject to certain ceiling limits. Based

• n limits, all eligible

donations under section 80G is divided into four categories:

100% deduction without any qualifying limit (e.g., Prime Minister‘s National Relief Fund)

50% deduction subject to qualifying limit (e.g., an approved institution for charitable purpose

• ther than

promoting family planning)

50% deduction without any qualifying limit (e.g., Indira Gandhi Memorial Trust) 100% deduction subject to qualifying limit (e.g., an approved instit ution for promoting family planning)

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Prime Minister‘s National Relief Fund National Defence Fund Central Govt.‘s Fund for Technology Development & Application The Chief Minister‘s Earthquake Relief Fund, Maharashtra Donations made to Zila Saksharta Samitis The Army Central Welfare Fund

• r the Indian Naval Benevolent

Fund or The Air Force Central Welfare Fund Army Central Welfare Fund, Indian Naval Ben. Fund, Air Force Central Welfare Fund The National Blood Transfusion Council or a State Blood Transfusion Council National Illness Assistance Fund

Prime Minister‘s Armenia Earthquake Relief Fund The Africa (Public Contribution – India) Fund National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation & Multiple Disabilities The National Foundation for Communal Harmony Approved university or educational institution of national eminence Indian Olympic Association/ other such notified association Andhra Pradesh Chief Minister‘s Cyclone Relied Fund

Chief Minister‘s or Lt. Governor‘s Relief Fund National Sports Fund National Cultural Fund Govt./ local authority/ institution/ association towards promoting family planning

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Jawaharlal Nehru Memorial Fund

Donations to govt./ local authority for charitable purposes (excluding family planning) Donations for repair/ renovation of notified places of worship World Vision India Udavum Karangal

Indira Gandhi Memorial Trust

Prime Minister‘s Drought Relief Fund

National Children‘s Fund

Authority/ corporation having income exempt under erstwhile section or u/s 10(26BB)

The Rajiv Gandhi Foundation

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Donati tion

• ns

s to the follow

• wing are eligibl

ble e for 100% deducti uction

• n subject

ct to 10% of adjust sted ed gross s total income

• Donations to the

Government or a local authority for the purpose of promoting family planning

• Sums paid by a

company to Indian Olympic Association Donati tion

• ns

s to the follow

• wing are eligibl

ble e for 50% deduc uction tion subject ect to 10% of adjusted ted gross s total income

• Donation to the

Government or any local authority to be utilized by them for any charitable purposes other than the purpose of promoting family planning

Qual alifyi fying ng Limi mit:- The qualifying limits u/s 80G is 10% of the adjusted gross total income. The limit is to be applied to the adjusted gross total

• income. The ‗adjusted gross total

income‘ for this purpose is the gross total income (i.e. the sub total of income under various heads) reduced by the following

• Amount deductible under Sections

80CCC to 80U (but not Section 80G)

• Exempt income
• Long-term capital gains
• Income referred to in Sections

115A, 115AB, 115AC, 115AD and 115D, relating to non-residents and foreign companies

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In case of direct CSR spending, the effective tax rate will increase. The company will have to pay additional taxes where the company undertakes CSR activities directly as CSR expenditure can be done from post tax income. In case, a company undertakes CSR activities through NGOs registered under section 80G (eligible for 50% tax deduction),then the tax liabilities will be reduced to 50% on such additional taxes.

The company will get 100% tax advantage and will not be required to pay any additional taxes where it undertakes CSR activities through NGOs registered under section 35AC or through NGO registered under section 80G (eligible for 100% tax deduction).

Sr. No. Specif ific ic CSR Activ ivit itie ies referre red d under Sched edule le VII to the 2013 Act Expenditur diture e allow lowed d under r the relevan vant provis vision ions of the Incom

• me-tax

tax Act, , 1961 I

Activities concerning Basic necessities of Life

More than prescribed layers of subsidiaries

• Eradication of poverty, hunger and malnutrition

Section 35AC read with Rule 11K(i)(f) of Income-tax Rules, 1962 (‗the 1962 Rules‘)

• Promoting Sanitation and health care and making available safe drinking water

Section 35AC r.w. Rule 11k(i)(a),(f),(j) of the 1962 Rules II Activities concerning Education

• Promoting Education, including special education and employment enhancing

vocational skills especially among children, women and elderly and the differently able Section 35AC r.w. 11K(i)(c),(i),(o),(p),(s) of the 1962 Rules

• Livelihood enhancement programs

Section 35AC r.w. 11K(i)(j),(s) of the 1962 Rules III Activities addressing inequality and gender discrimination Section 35AC r.w. Rule 11K(i)(n),(i) of the 1962 Rules

• Promoting gender equality
• Empowering women
• Setting up of homes and hostels for women and orphans
• Setting up old age homes, day care centre and such

IV Activities concerning Care for environment Section 35AC r.w. Rule 11K(i)(d),(h),(l),(q),(r) of the 1962 Rule

• Ensuring environmental sustainability and ecological balance
• Preservation of flora and fauna, animal welfare, agro forestry
• Conservation of natural resources and maintaining quality of soil, air and wate

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Sr. No. Specif ific ic CSR Activ ivit itie ies referre red d under Sched edule le VII to the 2013 Act Expenditur diture e allow lowed d under r the relevan vant provis visions ions of the Income

• me-tax

tax Act, 1961 V Activities concerning protection of National Heritage, Art and Culture Section 35AC r.w. Rule 11K (The notification issued under the Act in the past have accepted the said activities for deduction u/s. 35AC [except with no precedent available for protection of national heritage u/s. 35AC, but deduction could be claimed in Section80G(2)(b)

• Protection of national heritage, art and culture including restoration of building and

sites of historical importance and works of art

• Setting up public libraries
• Promotion of traditional arts and handicrafts and its development

VI Activities concerning benefit to Armed Forces, veterans, war widows and their dependants

• Measures for the benefit of armed forces, veterans, war widows and their dependents

Section 80G(2)(a)(i) and 80G(2)(a)(iii)(h)(c) VII Activities concerning Sports

• Training to promote rural sports, nationally recognised sports, Paralympics sports and

Olympic sports Section 35AC r.w. Rule 11K(i)(g) VIII Activities concerning national relief and welfare of Economically backward class of Society

• Contribution to PM National relief fund or any other fund

Section 80G(2)(a)(iiia)

• Relief and welfare of the Schedules Casts, Schedules Tribes,\ Other backward castes,

minorities and women Section 35AC r.w. Rule 11K(i)(b),(c) and Rule 11K(ii) of the Income-tax Rules IX Activities concerning Technology incubators

• Contributions or funds provided to technology incubators located within academic

institutions which are approved by Central Government Section 35(2AA) and Section 80G(2)(iihi) [considering limited information available and provided on the subject, it will have to be determined as to whether the aforesaid section shall be able to provide deduction to the activities concerned] X Activities concerning Rural Development

• Rural Development Projects

COURTESY: CA Ankit Virendra Sudha Shah SOURCE: file:///C:/Users/ABC/Desktop/CSR/Untitled%20Document.html

Section 35AC and Section 35CCA [with limited information available and provided on the term referred to as ‗rural development projects‘ therefore, either of the provisions may be considered for allowability of expenditure] 7

Company can establish their own following legal entities

• Registered trust
• Registered society
• Company or its

subsidiary or holding

• r associate company

under Section 8. If a Trust, Society or Company is not established by the Company, then it must have an established track record of three years in undertaking similar projects or programs. A company can collaborate with other companies for undertaking CSR activities in such manner that the CSR Committees of the respective companies are able to report separately on such CSR Activities.

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Diff fferent ntial al fact ctors Trust st Soci ciety Sect ction n 8 comp mpan any2 y22(e 2(ear arlier known as Sect ction n 25 compa mpany) ny) Basic document Trust deed which contains

• bjects of the trust (bye-law)

Memorandum of association Articles of association with rules and regulations Memorandum of association Articles of association Formation Simple Simple Slightly difficult Jurisdiction Deputy registrar or charity commissioner Registrar of Societies Registrar of Companies Legislation / statute Relevant state trust act Societies Registration Act 1860 Companies Act 2013 Objectives Social benefits and charitable Literary, charitable, scientific and resource oriented Non profit activities Re-amendment or modification

• f objects

Alteration can be undertaken

• nly by the founder or settler

Easy, legal procedures Complicated, legal procedures Required members Minimum = 2, maximum = no limit Minimum = 7, maximum = no limit Minimum = 7, maximum = no limit Registration As trust with the registrar As society with society registrar As per Companies Act under Section 8 (earlier Section 25)

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Diff fferent erential al fact ctors Trust st Soci ciet ety Sect ction n 8 comp mpan any22 y22(e (ear arlier er known as Sect ction n 25 compa mpany) ny) Stamp duty 4% of trust property value will be executed in non judicial stamp paper with the registrar No stamp paper required for memorandum of association, and rules and regulations No stamp paper required for memorandum and articles of association Name Easy to choose Easy to choose Prior approval required from Registrar of Companies Management board Trustees Governing body Board of directors and management committee Succession in management By election By election By appointment Meetings No provisions Annual meeting as per law, governing body meeting as per the rules of society, Quite extensive as per the provision of Company Law Statutory regulations Nominal Limited Maturable and exhaustive Membership transfer Not possible Not possible Free or control as per desire Payment to members As notified in trust deed Not restricted As approved by company and state Member admission Not applicable Governing body control General body or board control through issue of capital

11-Jan-17 COURTESY: Handbook on Corporate Social Responsibility in India Source-PWC

In a country such as India, where one-third of the population is illiterate, two-thirds lack access to proper sanitation, and 400 million people still live on less than US$2 a day, the passage of the Companies Act should be hailed as a positive step forward in ensuring that business contributes to equitable and sustainable economic and social development.

Also, by making CSR mandatory, companies may treat it as a ―check the box‖ exercise rather than looking at ways to innovate and generate a return from doing social and environmental good. And most companies will comply by channeling funds to community organizations that are addressing

• ne of the priority topics mentioned. There is no shortage of organizations that will be willing to

accept these funds—there are an estimated 3.3 million NGOs in India—but few organizations have the capacity and the skill to effectively manage projects that can have a large-scale impact. In an effort to meet the spending obligations, companies may not do the right due diligence to select high-impact, credible organizations.

It‘s too early to say what the real impact of this act will be, especially given that passing it and enforcing it are two different things. But with the controversy around the CSR provision, and the lack of specificity and detail, there is an opportunity for leading companies to influence the way the CSR mandate is interpreted. Given the immense need and tremendous business

• pportunity in India, this can only be a good thing.

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• Dr. Gopal Energy Foundation

JA120,DLF TOWERS-A NEW DELHI-110025

• Tel. :91-11-26943664

Fax.: 91-11-26970075 Mobile 09810070075

E-mail info@dgef.in Website-www.dgef.in

11-Jan-17