Corporate Social Responsibility is a management concept whereby organizations include the social and environmental issues with their business undertakings. CSR is by and large comprehended similar to the path through which an organization accomplishes a balance of financial, environmental and social objectives, while in the meantime tending to the desires for investors and stakeholders.
CSR Activities
Every company must undertake CSR activities in accordance to its policy regarding the same. Any activity which company undertakes as part of its normal course of business is not counted as their CSR activity.
CSR activities may be undertaken through a registered trust, society or a company established by the company, its holding, subsidiary or associate company. Companies may also collaborate; however, they must be in a position to separately report on the activities undertaken. Contributions given to a political party or amount spent on programs or activities which only benefit the employees of the company are not considered to be CSR activities.
The Rule specifies that the CSR projects or programs were undertaken only in India shall qualify for the purposes of this section. The company should give preference to the local area and areas around it for operating CSR activities.
Goals of a company under their Corporate Social Responsibility under the Companies Act:
- Eradicating poverty and malnutrition and promoting healthcare;
- Promoting education including special training to differently abled and livelihood enhancement projects;
- Promoting gender equality and women empowerment;
- Ensuring environmental sustainability;
- Protection of national heritage, art, and culture; setting up of public libraries;
- Rural development projects etc.
Expenditure on CSR
There is a mandate to spend 2% of the average net profits of the last three years on CSR activity. ‘Expenditure’ is not confined to the money which has been actually paid out. It covers a liability which has accrued or which has been incurred although it may have to be discharged at a future date.
There is no legal obligation on a company to spend on CSR or cover for the shortfalls in the subsequent years. Also, there is absolutely no guidance in the Companies Act or rules thereof regarding whether a company can carry forward any amount spent in addition to the minimum to spend less in the year subsequent.
The expenditure on CSR activities is usually non- deductible for tax purposes unless falling within exceptions of the Income Tax Act, 1961.
Therefore, the Corporate Social Responsibility is actually ensuring the companies to show responsibility towards the society thereby doing some welfare and developmental activities for the common good. The intent behind CSR expenses is to ensure that companies which essentially derive their revenue from the communities in which they operate, a part of the same be returned to the community for its betterment and welfare. It is, in the simplest words, a payback to the society by the companies for the resources or revenue taken for its working and, for this reason, it is preferred that CSR activities must be organized in the local area in which company is situated.