Did you know that as per the Forbes India Publication in January 2025, HDFC spent more than ₹800 crores on CSR, making it one of India's highest CSR spending companies. The bank has touched over 9 lakh households nationwide through its Holistic Rural Development Programme (HRDP). In the field of education, the company's initiatives have transformed traditional schools into digital schools, benefiting more than two crore students nationwide. Also, you will be happy to know that currently Maharashtra ranks No.1 in terms of CSR expenditures as per the National CSR Portal.
What Is CSR?
Corporate Social Responsibility (CSR) is simply the contribution of the corporates towards the society in return for the profits that they earn from the society. Taking conscious steps towards improving the impact the company has on the society in terms of the environment, promotion of equality and diversity, fair treatment towards the employees, and making ethical decisions is what broadly constitutes a company's CSR Activities. In today's world, customers and employees value companies that prioritize CSR and can spot when businesses are being hypocritical. Companies need to assess their values and goals to find CSR initiatives that fit their mission.
Initially, this was a voluntary contribution, however w.e.f. 01.04.2014 Spending under CSR became a mandatory provision under section 135 of the Companies Act,2013, making India the only country which has regulated and mandated CSR for some select categories of companies registered under the Act.
Applicability Of CCSR:
A company satisfying any of the following criteria is required to contribute atleast 2% of their average net profit (of the preceding three financial years) on CSR activities:
- net worth of rupees five hundred crore or more, or
- turnover of rupees one thousand crore or more, or
- net profit of rupees five crore or more
Types Of CSR:
Corporate Social Responsibility (CSR) can be divided into four main types, each focusing on different ways a company can contribute positively to society and the environment.
- Environmental Responsibility: This focuses on reducing pollution, waste, and carbon emissions in the Company's operations. It emphasizes recycling materials, encouraging customers to reuse products, and offset any harm they may cause to nature, such as planting trees or supporting environmental projects. Additionally, it urges companies to choose delivery methods that reduce pollution and create products that are better for the environment.
- Ethical Responsibility: This is about ensuring a company behaves fairly and ethically. It means treating all customers with respect, regardless of their background, and ensuring employees receive fair pay and benefits. Companies also work with suppliers from diverse groups, ensuring equal opportunities for all. Being transparent with investors and honest about business practices is also part of ethical responsibility.
- Philanthropic Responsibility: Companies show their commitment to society by donating resources to causes they believe in, like charities or community projects. They may also support employees in their charitable activities by matching donations or giving them time off to volunteer. Some companies sponsor events that raise money for good causes or get involved in local community efforts.
- Financial Responsibility: This ties everything together by making sure the company invests money into its CSR goals. For example, a company might spend on research to develop eco-friendly products, hire a diverse workforce, or fund training programs on diversity and social issues. Financial responsibility also includes spending money on processes that might be more expensive but result in better outcomes for society, as well as ensuring the company keeps its financial records clear and accurate.
CSR Committee
Every Company that is required to contribute under the CSR policy as per the Companies Act,2013 shall form a CSR committee of three or more Directors, where at least one of the Directors needs to be an independent Director. However, if the company is not required to appoint an Independent Director, it can form a committee with two or more Directors. Similarly, a Pvt. Ltd. Company with only two Directors will have a committee constituting those two directors. In the case of a foreign company, at least one person shall be a person resident in India authorized to accept notices and other documents on behalf of the foreign company, also, the other person shall be nominated by the foreign company.
Functions Of The CSR Committee
The Committee shall —
- Formulate and recommend the CSR policy to the Board;
- Recommend the amount to be spent on CSR activities;
- Monitor the CSR policy of the company regularly; and
- Formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy, which shall include the items as mentioned in rule 5(2) of the Companies (CSR Policy) Rules, 2014.
Role Of The Board:
- The Board of Directors plays a key role in implementing the company's CSR policy.
- It must approve the CSR policy recommended by the CSR Committee.
- The approved policy must be:
- Included in the Board's Report, and
- Published on the company's website (if available).
- The Board must ensure proper execution of CSR activities as per the approved policy.
- It must also ensure the company spends at least 2% of its average net profits (as per Section 135(5)), with preference to local areas.
- If the required amount is not spent, the Board must disclose the reason in the Board Report under Section 134(3)(o).
- The administrative overheads should not exceed 5% of the total CSR expenditure.
What Is CSR-1 Form?
Corporate Social Responsibility (CSR) has become an integral part of business culture, with companies globally acknowledging the significance of aligning their operations with sustainable development goals. In India, the Ministry of Corporate Affairs (MCA) has introduced essential measures to enhance transparency and accountability in CSR initiatives.
Section 135 of the Companies Act, 2013 ('Act') and Rule 4(1) and Rule 4(2) of the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 ('Rules') provides that the companies or entities that require funds from Companies under CSR have to mandatorily register with the Registrar of Companies (ROC) by filing the eForm CSR-1.
Registration Under CSR-1:
Entities must register on the MCA portal as per Rule 4(2) of the New Companies CSR Amendment Rules, 2021 for accessing CSR funds. It is important to note that:
- Entity should be an NGO viz-a-viz Section 8 company, a public trust, or a society registered under Sections 12A and 80G of the Income Tax Act.
- It must register by submitting Form CSR-1 online through the MCA portal.
- The form CSR-1 must be verified digitally by a practicing Chartered Accountant, Company Secretary, or Cost Accountant.
- Once Form CSR-1 is submitted, the system will automatically generate a unique CSR Registration Number for the NGO.
Documents Required For Form CSR-1:
- Provide a copy of the registration certificate: Section 8 company certificate, trust deed, or society memorandum.
- Submit a copy of the entity's PAN card.
- If applicable, include Income Tax Exemption Certificates: 12A and 80G.
- Upload the Digital Signature Certificate (DSC) of the authorized signatory.
- Provide PAN card of the authorized signatory.
- Submit DIN or PAN details of key personnel: Director, Trustee, Secretary, etc.
CSR-2: Report On The Corporate Social Responsibilty:
The Ministry of Corporate Affairs (MCA) has introduced Form CSR-2, which must be submitted by Companies who are required to spend under CSR alongside Form AOC-4 when filing financial statements with the Registrar of Companies.
Form CSR-2, issued on February 11, 2022 mandates companies to provide:
- A breakdown of CSR expenditure over the past three financial years, along with details of ongoing CSR projects.
- Information about the CSR Committee, including its composition.
- Disclosure of CSR-related information on the company's website as per Rule 9 of the Companies (CSR Policy) Rules, 2014.
- Financial details, including net profit and other relevant company data for preceding years.
- If CSR funds have been utilized to create or acquire capital assets, companies must furnish details such as the location, address, pin code, amount spent, and registered owner of the property.
This new requirement aims to enhance transparency and accountability in CSR activities.
Fines & Penalties Under CSR
- Under the Companies Act, 2013, companies must comply with CSR regulations regarding:
- Penalties for non-compliance:
- Company: Up to ₹1 crore or twice the unspent CSR amount (whichever is lower).
- Officer in default: Up to ₹2 lakh or one-tenth of the unspent amount (whichever is lower).
- CSR compliance is monitored via disclosures on the MCA 21 portal.
- For violations, the Government may initiate action under the Companies Act after due examination and legal process.
- Non-compliance of CSR provisions has been classified as a civil wrong effective from 22nd January, 2021.
It must be noted that:
- If the Company spends an amount in excess of the statutory requirement then it may set it off against the CSR expenses of the immediately succeeding three Financial Years.
- Any surplus arising from CSR activities can not be treated as business profits and it needs to be utilized towards CSR projects only or transferred to the Unspent CSR Account.
- The CSR amount may be spent to create or acquire a Capital Asset to be held either by an NGO recognized under Indian laws or by the beneficiaries of the CSR Project or by a Public Authority.
- In case any amount remains to be unspent under an ongoing project, it needs to be transferred to the Unspent CSR Account and such amount shall be spent within the next
- inancial years or shall be transferred to a Fund specified in Schedule VII, within thirty days from the date of completion of the third financial year.
- If the CSR amount to be spent does not exceed fifty lakh rupees, there is no need to form a CSR committee and all the functions can be performed by the Board.