India is one of the few countries in the world to have a CSR act which makes CSR mandatory for certain companies, depending on their net worth, profits and annual turnover. CSR allows companies to integrate various social, legal and environmental concerns in their business strategy and culture. It is not the same as acts of charity or other philanthropic activities as part of business operations.
CSR generates direct and indirect benefits for companies as the company gains legitimacy in the market. CSR allows for a better public image and enhanced brand value, leading to increased customer loyalty. It also builds a trust between the company the local government as they are no longer perceived as exploiters of commerce but facilitators of development. CSR also helps companies retain employees.
According to the current laws, CSR activities entail “eradicating hunger and poverty, promotion of education and employment, livelihood enhancement projects, promoting gender equality, women empowerment, hostels for women and orphans, old age homes, day care, environmental sustainability, protection of flora and fauna, contributions to PM relief fund, measures to benefit armed forces veterans, war widows and dependants, promotion of sports, and rural development projects”.
Therefore, local communities and the society at large also benefits through investment in socio-economic and environmental causes by companies.
CSR is compulsory for all companies- public or private or otherwise, if they meet one or more of the following conditions. The company has:
- a net worth of Rupees 500 crores (equivalent US 70 million) or more;
- an annual turnover of Rupees 1000 crores (equivalent US 140 million) or more;
- An annual net profits of Rupees 5 crores(equivalent US US 699,125).
If any one of these fiscal conditions are met, it was mandatory for the company to have an internal committee to not only enforce CSR mandate by creating an elaborate policy giving preference to local areas where the company was situated but also allocate and audit money for various CSR activities.
Under the erstwhile framework, such a company had a leeway to spend 2 percent of their average net profits of three years on CSR. If the company had failed to do so, it had to merely elaborate its decision by stating a specific reason. However, according to the recent amendments, any unspent amount in a financial year has to be transferred to a CSR account. This has to be spent within the next three financial years. If the amount has remained unutilised, it has to be transferred to a governmental fund. Any non-compliance will attract harsh penalties.
Do you have any questions about your company’s compliance with India’s CSR laws, please get in touch with Miss Legal India.