Corporate Social Responsibility

  • Category
    Economy
  • Published
    13th Aug, 2019

Context

Recently, Parliament has passed amendments to the Companies Act, 2013 to strengthen laws governing corporate social responsibility (CSR).

About

  • Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially accountable.
  • It is also called corporate citizenship.
  • By practicing CSR, companies can be conscious of the kind of impact they are having on all aspects of society including economic, social, and environmental.

Current provisions governing CSR:

  • The laws governing CSR come under the Companies Act, 2013, and became effective on 1 April 2014.
  • These laws state that companies with a net worth of ?500 crore or revenue of ?1,000 crore or net profit of ?5 crore during the immediately preceding fiscal should spend 2% of their average net profit in the last three years on activities related to social development such as sanitation, education, eradication of hunger, poverty and malnutrition, conservation of heritage, art and culture, and vocational training such as setting up grooming outlets or training centres for sewing.
  • If a company is unable to fully incur the CSR expenditure in a given year, it could carry this amount forward and spend it in the next 12 months, in addition to the money for that year.

New changes proposed:

  • Under the new laws, any unspent amount will have to be deposited into an escrow account within 30 days of the end of that fiscal.
  • This amount will have to be spent within three years from the date of its transfer, failing which it will be put into a fund, which could even be the Prime Minister’s Relief Fund.
  • The government also plans to include a specific penal provision in the Companies Act in case of non-compliance with CSR. Companies violating CSR norms will attract fines ranging from ?50,000 to ?25 lakh, with the officers concerned liable for imprisonment of up to three years.
  • Listed firms need to disclose their CSR activities, amount spent and framework created to ensure adherence to norms.
  • Companies need to have a CSR team that provides a regular progress report and updates to the CSR committee of the board. The committee is given a report of the activities undertaken each quarter, along with targets and reasons for variance, if any. All this is needed to be submitted to the corporate affairs ministry.
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