India became the first country in the world to make corporate social responsibility (CSR) mandatory following an amendment to the Companies Act 2013 in April 2014. Businesses can invest their profits in areas such as education, poverty, gender equality, and hunger as part of any CSR compliance.
Amid the COVID-19 outbreak, the Ministry of Corporate Affairs has notified companies that their expenditures to fight the pandemic will be considered valid under CSR activities. Funds may be spent on various activities related to COVID-19, such as promotion of health care, including preventive health care and sanitation, and disaster management.
The amendment to the Companies Act 2013 requires companies with a net worth of Indian rupee (INR) 5 billion (US$70 million) or more, or an annual turnover of INR 10 billion (US$140 million) or more, or net profit of INR 50 million (US$699,125) or more, to spend 2% of their average net profits of three years on CSR.
Prior to that, the CSR clause was voluntary for companies, though it was mandatory for them to disclose their CSR spending to shareholders. CSR includes but is not limited to the following:
- Projects related to activities specified in the Companies Act
- Projects related to activities taken by the company board as recommended by the CSR Committee, provided those activities cover items listed in the Companies Act
Businesses must note that the expenses toward CSR are not eligible for deduction in the computation of taxable income. The government, however, is considering a re-evaluation of this provision, as well as other CSR provisions recently introduced under the Companies (Amendment) Act 2019 (“the Act”).
CSR Amendments Under Companies (Amendment) Act 2019
Until now, if a company could not fully spend its CSR funds in a given year, it could carry the amount forward and spend it in the next fiscal year, in addition to the money allotted for that year.
The CSR amendments introduced under the Act now require companies to deposit the unspent CSR funds into a fund prescribed under Schedule VII of the Act within the end of the fiscal year. This amount must be utilized within three years from the date of transfer, failing which the fund must be deposited into one of the specified funds.
The new law prescribes a monetary penalty, as well as imprisonment in case of non-compliance. The penalty ranges from INR 50,000 (US$700) to INR 2.5 million (US$35,000), whereas the defaulting officer of the company may be liable to imprisonment for up to three years, or a fine up to INR 500,000 (US$7,023), or both.
The government, however, is reviewing these rules after the industry objected to the strict provisions, especially with respect to the jail terms for CSR violations and is yet to operationalize them.
The Methodology of CSR
CSR is the procedure for assessing an organization’s impact on society and evaluating its responsibilities. It begins with an assessment of the following aspects of each business: customers, suppliers, environment, communities, and employees.
The most effective CSR plans ensure that while organizations comply with legislation, their investments also respect the growth and development of marginalized communities and the environment. CSR should also be sustainable—involving activities that an organization can uphold without negatively affecting their business goals.
Organizations in India have been quite sensible in taking up CSR initiatives and integrating them into their business processes.
It has become progressively ingrained in the Indian corporate setting because organizations have recognized that besides growing their businesses, it is also important to shape responsible and supportable relationships with the community at large.
Companies now have specific departments and teams that develop specific policies, strategies, and goals for their CSR programs and set separate budgets to support them.
Most of the time, these programs are based on well-defined social beliefs or are carefully aligned with the companies’ business domains.
CSR Trends in India
Since the applicability of the mandatory CSR provision in 2014, CSR spending by corporate India has increased significantly. In 2018, companies spent 47% more as compared to the amount in 2014-15, contributing US$1 billion to CSR initiatives, according to a survey.
Listed companies in India spent INR 100 billion (US$1.4 billion) in various programs ranging from educational programs, skill development, social welfare, health care, and environment conservation, while the Prime Minister’s Relief Fund saw an increase of 139% in CSR contributions over last year.
The education sector received the maximum funding (38% of the total) followed by hunger, poverty, and health care (25%), environmental sustainability (12%), and rural development (11%). Programs such as technology incubators, sports, armed forces, and reducing inequalities saw negligible spends.
Considering the recent amendments to CSR provisions, industry research estimates CSR compliance to improve and range between 97% to 98% by FY 2019-20.
Examples of CSR in India
Below are four examples of the use of CSR across India:
1. Tata Group
The Tata Group conglomerate in India carries out various CSR projects, most of which are community improvement and poverty alleviation programs. Through self-help groups, it has engaged in women’s empowerment activities, income generation, rural community development, and other social welfare programs. In the field of education, the Tata Group provides scholarships and endowments for numerous institutions.
The group also engages in health care projects, such as the facilitation of child education, immunization, and AIDS awareness. Other areas include economic empowerment through agriculture programs, environment protection, providing sports scholarships, and infrastructure development such as hospitals, research centers, educational institutions, sports academy, and cultural centers.
2. Ultratech Cement
Ultratech Cement, India’s biggest cement company, is involved in social work across 407 villages in the country aiming to create sustainability and self-reliance. Its CSR activities focus on health care and family welfare programs, education, infrastructure, environment, social welfare, and sustainable livelihood.
The company has organized medical camps, immunization programs, sanitization programs, school enrollment, plantation drives, water conservation programs, industrial training, and organic farming programs.
3. Mahindra & Mahindra
Indian automobile manufacturer Mahindra & Mahindra (M&M) established the K.C. Mahindra Education Trust in 1954, followed by Mahindra Foundation in 1969 with the purpose of promoting education. The company primarily focuses on education programs to assist economically and socially disadvantaged communities.
Its CSR programs invest in scholarships and grants, livelihood training, healthcare for remote areas, water conservation, and disaster relief programs. M&M runs programs such as Nanhi Kali focusing on education for girls, Mahindra Pride Schools for industrial training, and Lifeline Express for healthcare services in remote areas.
4. ITC Group
ITC Group, a conglomerate with business interests across hotels, fast-moving consumer goods (FMCG), agriculture, IT, and packaging sectors has been focusing on creating sustainable livelihood and environment protection programs. The company has been able to generate sustainable livelihood opportunities for six million people through its CSR activities.
Their e-Choupal program, which aims to connect rural farmers through the internet for procuring agriculture products, covers 40,000 villages and over four million farmers. Its social and farm forestry program assists farmers in converting wasteland to pulpwood plantations. Social empowerment programs through micro-enterprises or loans have created sustainable livelihoods for more than 40,000 rural women.
(This article was originally published in July 2012 and was last updated on 23 March 2020, to include the latest developments.)
This article was first published by India Briefing.
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