Ministry of Corporate Affairs has notified a Section, i.e. Section 135 and Schedule VII and provisions of the Companies (CSR Policy) Rules that came into effect from April 1, 2014 under companies act 2013.
Now every company weather it is a private firm or a public firm if it has a net worth of Rs five hundred crore or turnover of Rs one thousand crore or it has a net profit of Rs five crore, It needs to spend at least 2% of its net profit for the preceding three financial years on CSR activities. The activities are not be undertaken as a normal course of business. They have to be with respect to the activities mentioned in Schedule VII of the companies Act 2013.
The net profits are to be computed in terms of Section 198 of the 2013 Act as per the P&L statement prepared by the company under the terms of Section 381 (1) (a) and Section 198 of the 2013 Act. Profits of overseas branch and the branches that are operating as a separate company wouldn’t be included in the computation of net profits of a company.
The CSR Rules specify that if any company is not satisfying the specified criteria of turnover for consecutive three financial years then it is not required to comply with any CSR obligations, this implies that any company which is not satisfying the specified criteria of CSR in a subsequent financial year will still need to undertake CSR activities unless and until it satisfy the specified criteria for a continuous period of three years. This has increase the burden on small scale companies which don’t make significant profits every year.
The Board of Directors Report that is attached to the financial statements of the Company has to include an annual report of the CSR activities of the company undertaken in a financial year in the format prescribed by companies Act 2013. If the company is unable to spend the required amount on its CSR initiatives then reasons for the same has to be specified in the Board Report.
Also all the companies have to disclosed their CSR policies openly on their respective websites