Corporate Social Responsibility (CSR) under the Companies Act, 2013

India is among the first countries in the world to make corporate social responsibility a statutory obligation, through Section 135 of the Companies Act, 2013 (read with the Companies (Corporate Social Responsibility Policy) Rules made under it), rather than leaving it purely voluntary.

Applicability: Section 135 applies to any company that, during the immediately preceding financial year, meets any one of these thresholds — net worth of Rs. 500 crore or more, or turnover of Rs. 1,000 crore or more, or net profit of Rs. 5 crore or more.

CSR Committee: Every company to which Section 135 applies must constitute a CSR Committee of the Board, consisting of at least three directors (with at least one independent director where the company is otherwise required to have one), responsible for formulating and recommending a CSR policy and the amount of expenditure to be incurred.

Spending obligation: The company must spend, in every financial year, at least 2% of its average net profit made during the three immediately preceding financial years, on CSR activities in accordance with its CSR policy.

Permitted activities (Schedule VII): Schedule VII of the Act lists the broad categories of activity that qualify as CSR — for example, eradicating hunger and poverty, promoting education, promoting gender equality, ensuring environmental sustainability, contributing to disaster relief, and rural development projects, among others. …