With reference to Corporate Social Responsibility (CSR) rules in India, consider the following statements:
- CSR rules specify that expenditures that benefit the company directly or its employees will not be considered as CSR activities.
- CSR rules do not specify minimum spending on CSR activities.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Correct Answer: (a) 1 only
- Statement 1: CSR rules specify that expenditures that benefit the company directly or its employees will not be considered as CSR activities. This is correct. According to the Companies (CSR Policy) Rules, 2014, any activity benefitting employees of the company is not considered as eligible CSR activity. The spirit behind CSR activities is to benefit the public at large and not to be discriminatory to any class of beneficiaries.
- Statement 2: CSR rules do not specify minimum spending on CSR activities. This is incorrect. The Companies Act, 2013 mandates that companies meeting certain criteria must spend at least 2% of their average net profits made during the three immediately preceding financial years on CSR activities.
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- Corporate Social Responsibility (CSR): CSR refers to the responsibility of companies to contribute positively to society. It involves companies taking actions that further social good beyond the interests of the firm and that which is required by law.
- Legal Framework: The Companies Act, 2013, particularly Section 135, and the Companies (CSR Policy) Rules, 2014, provide the legal framework for CSR in India. These rules mandate that companies meeting certain financial thresholds must spend a minimum of 2% of their average net profits from the last three years on CSR activities.
- Eligibility Criteria: Companies with a net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or a net profit of ₹5 crore or more during any financial year are required to comply with CSR provisions.
- Exclusions: CSR activities do not include:
- Implementation: Companies can undertake CSR activities through:
- Reporting and Compliance: Companies must report their CSR activities in their annual reports and on their websites. Non-compliance can result in penalties, including fines and imprisonment for responsible officers.
- Impact Assessment: Companies with significant CSR expenditures must conduct impact assessments of their CSR projects to ensure effectiveness and transparency.
