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Exposure Draft for Public Comments on FAQs on CSR under the Companies Act 2013 by CL&CGC of ICAI with in 15 days i.e., upto 7th February, 2015.
January, 27th 2015
                                 EXPOSURE DRAFT



                         Frequently Asked Questions
                                   On the provisions
                                                  of
                     Corporate Social Responsibility
    under Section 135 of the Companies Act 2013 and
                                      Rules thereon




Comments/suggestions may kindly be sent to the following address/ e-mail within
                    15 days i.e. upto 7th February, 2015


                                     The Chairman
             Corporate Laws & Corporate Governance Committee
                                         ICAI,
                                    th
                    ICAI Bhawan, 4 Floor, Administrative Block.
                        Plot A/29, Sector 62, NOIDA 201 309,
                         Gautam Budh Nagar, Uttar Pradesh
                                   clcgc@icai.in

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Exposure Draft of FAQs on CSR by Corporate Laws & Corporate Governance Committee ICAI
                                             Preamble


The background of these Frequently Asked Questions (FAQs) is to give clarifications regarding
treatment of Corporate Social Responsibility (CSR) spending in the books of accounts and
disclosures in the Financial Statements. It is important to note that these FAQs are guidance to
such interpretation and have to be read in the light of the clarifications issued by the Ministry of
Corporate Affairs as per Circular No 21/2014 dated June 18, 2014 that a liberal interpretation
has to be taken in the matter. The nature of CSR being a way of conducting business in which
such organization recognizes interest of all stakeholders to become socially responsible citizens
to integrate economic, environmental and social objectives with the company's operations and
growth needs to be taken as a broad guiding principle behind such CSR activities. Such CSR
activities should also be in line with the CSR Policy approved by the Board in line with Schedule
VII of the Companies Act, 2013.


These FAQs have been approved by the Corporate Laws & Corporate Governance Committee
of the Institute of Chartered Accountants of India. It was decided that public comments may be
invited on these FAQs. The document is uploaded on ICAI website for public comments with in
15 days i.e., upto 7th February, 2015.




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Exposure Draft of FAQs on CSR by Corporate Laws & Corporate Governance Committee ICAI
                                                Index
  S.                                    Particulars                                     Page No
 No.
    1.   Frequently Asked Questions (FAQs) on the provisions of Corporate                 04
         Social Responsibility under Section 135 of the Companies Act 2013
         and Rules thereon
    2.   Text of Section 135 of the Companies Act 2013                                    10
    3.   Schedule VII of the Companies Act 2013                                           12
    4.   Annotated Text of CSR Rules under Chapter IX, amended upto                       14
         January, 2015
    5.   Summary of Circulars issued by the Ministry of Corporate Affairs                 20
         related to CSR




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Exposure Draft of FAQs on CSR by Corporate Laws & Corporate Governance Committee ICAI
Frequently Asked Questions (FAQs) on the provisions of Corporate Social Responsibility
under Section 135 of the Companies Act 2013 and Rules thereon


1.    Whether CSR expense is a Capital expenditure or a revenue expenditure


      Treatment in books of accounts- where an expenditure of revenue nature is incurred on
      any of the activities mentioned in Schedule VII to the Act by the company on its own, the
      same should be charged as an expense to the statement of profit and loss. In case the
      expenditure incurred by the company is of such nature which may give rise to an `asset', it
      should be recognised by the company in its balance sheet,provided the control over the
      asset is with the Company and future economic benefits are expected to flow to the
      company. Otherwise it takes the character of enabling Asset and hence to be charged off
      to P&L. Where any CSR asset is recognized in its balance sheet, the same may be
      classified under natural head (e.g. Building, Plant & Machinery etc.) with specific subhead
      of `CSR Asset' if the expenditure satisfies the definition of `asset'. For example, a building
      used for CSR activities where the beneficial interest has not been relinquished for Lifetime
      by a company and from which any economic benefits flow to a company, may be
      recognised as `CSR Building' for the purpose of reflecting the same in the balance sheet.If
      an amount spent on an asset has been shown as CSR spend, then the depreciation on
      such asset cannot be claimed as CSR spend again.Once cost of the asset is included for
      CSR spend, then the depreciation on such asset will not be included for CSR spend even
      if the asset is capitalized in the books of accounts and depreciation charged thereon.


      Disclosure of CSR spend- Item 5 (a) of the General Instructions for Preparation of
      Statement of Profit and Loss under Schedule III to the Companies Act, 2013, requires that
      in case of companies covered under Section 135, the amount of expenditure incurred on
      `Corporate Social Responsibility Activities' shall be disclosed by way of a note to the
      statement of profit and loss. The note should also disclose the details with regard to the
      expenditure incurred in construction of a capital asset under a CSR project.




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2.    Whether CSR spends are to be shown in books of accounts under a separate CSR
      head or are they to be included under the normal heads of accounts or are they to
      be shown in the notes to accounts.


      All expenditure on CSR activities that qualifies to be recognized as expense may either be
      recognized as a separate line item as `CSR expenditure' or under natural heads of
      expenses in the statement of profit and loss with disclosure of the break-up and the total
      amount spent on CSR activities during the year. Some of the items which are charged to
      the profit & loss account in the normal course, meeting the criteria for CSR expenditure,
      would also be eligible to be considered as a CSR expenditure. Disclosure of CSR spend is
      already covered in answer to question no 1 above.


3.    Please give illustrations of certain types of CSR spending apart from CSR spends
      which are easily identifiable by the company.


      The following are examples of expenditures can be classified as CSR expenditure if it is
      within the areas covered by Schedule VII and is as per CSR policy approved by the
      Company's Board of Directors. These are only illustrations and companies are required to
      apply facts and circumstances in each case for categorization of such spends.
      a) Any company supplyingits goods or services manufactured/ provided by it free of cost
         or at a concessional rate to people affected by natural calamities like flood, earthquake
         etc.
      b) A company decides that for every pack of pencils sold by the company, Rupee 0.50 will
         go towards education of a girl child. The amount earmarked from such sale will not be
         automatically considered as CSRand only such of the amounts which are spent will
         qualify to be considered as CSR spend
      c) Environmental Sustainability­Essence of Schedule VII includes ensuring environmental
         sustainability, ecological balance, protection of flora and fauna, conservation of natural
         resources, and maintaining the quality of soil, air and water. Companies which help in
         generation of renewable energy like solar/ wind and water tend to save natural
         resources like hydro carbon/ fossil fuel aiding ecological balance which is one of the
         areas covered by Schedule VII. Cost of setting up renewable energy for captive

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Exposure Draft of FAQs on CSR by Corporate Laws & Corporate Governance Committee ICAI
         consumption and/ or the cost of procuring renewable energy which leads to
         conservation of fossil fuels / hydro carbonsshould be considered as CSR provided
         thatsuch spends are for renewable energy consuming companies and not for
         companies whoare in the business of production or distribution of such renewable
         energy for sale in the ordinary course oftheir business.


      d) Spending in Technical and Vocational Training for skill building based on training cum
         apprenticeship results in enhancing the employability of such trainees. Cost of such
         expenses such as stipend, faculty, infrastructure costs etc will be included as CSR
         activities. It will not deprive the company which is providing such training to hire a
         trainee from that pool of talent. .However, if such a training is provided to existing
         employees then it shall not qualify as CSR.


4.    Will CSR spend be an Appropriation or a charge on P&L.


      While any CSR spend which is covered above being direct in nature and related to its
      business processes shall be a charge in the Profit and Loss Account, any expense not
      covered by above explanations like for example CSR spend in adopting a village for
      overall development where such village development activity is not related to its business
      or its earnings or where such spendhas no impact on its costs/ operationsmaybe treated
      as an appropriation out of the profits.





      However, both the above type of spends shall be aggregated and reported for the purpose
      of CSR spends reporting required to be made by the company under the Companies Act
      2013 and rules thereunder.


5.    Are overseas Branch profits / losses included in Net Profit for calculating CSR
      spend?


      Net Profit for the purpose of calculating CSR spend shall not include any profit arising
      from any overseas branch or branches of the company, whether operated as a separate
      company or otherwise. In addition any dividend received from other companies in India,

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Exposure Draft of FAQs on CSR by Corporate Laws & Corporate Governance Committee ICAI
      which are covered under and complying with the provisions of section 135 of the Act as
      well as any dividend received from a company incorporated outside India shall also be
      excluded from the Net Profit.This is built on the rationale that CSR spend outside India
      does not qualify as CSR spend under Section 135 of the Companies Act, 2013. As a
      corollary, income earned outside India shall also not be considered for determining CSR
      spend in India.


6.    How do we treat CSR spending in the ordinary course of business vs CSR
      expenses not incurred in the ordinary course. Does it include CSR spending that
      also includes employees of the Company or their families who are also
      beneficiaries of such CSR spend?


      CSR activities shall exclude activities undertaken in pursuance of its `normal course of
      business'. For example, an electricity distribution company connecting the last house in a
      village cannot classify such expense as CSR. Similarly a tea plantation company planting
      trees and shrubs in close proximity to such tea plantations cannot be classified as CSR
      spending since they are in the ordinary course of business of such businesses.


      Similarly, Programmes or projects or activities that are carried out as a pre-condition for
      setting up a business or as part of a contractual obligation undertaken by the company or
      in accordance with any other law, should not be considered as CSR. Such spending on
      installation of rain water harvesting or a device to prevent pollution which aremandatorily
      required to be carried out by law shall not qualify as CSR spend. Such requirements under
      relevant regulations prescribed as a necessary part of running of the business, would be
      considered to be the activities undertaken in the `normal course of business' of the
      company and, therefore, would not be considered CSR activities.


      CSR projects or programmes or activities that benefit only the employees of the company
      and their families shall not be considered as CSR. However, programme or activities that
      are for the benefit of all, but, which also includes some employees or their families will still
      be considered as CSR as long as such benefits are not exclusively for the benefit of such
      employees. For example recreational facilities provided for employees and their families in

                                                                                                    7
Exposure Draft of FAQs on CSR by Corporate Laws & Corporate Governance Committee ICAI
      the employee quarters shall not be considered as CSR. However, if the Company
      maintains say a stadium for promotion of sports in a city used by residents of that place
      and not exclusively by its employees then such spending shall be still considered as CSR
      provided that such facilities are not inside the premises of a Company.


7.    Treatment of shortage in CSR spend and disclosure and possibility of carry forward
      of excess spending of CSR. Is there any need for creation of a provision in the
      event of a shortage in spending?


      Any shortfall in spending in CSR shall be explained in the financial statements and the
      Board of Directors shall state the amount unspent and reasons for not spending that
      amount. Any such shortfall is not required to be provided for in the books of
      accounts.However, if a company has already undertaken certain CSR activity for which a
      contractual liability has been incurred then, a provision for the requisite amount payable to
      record that liability needs to be recognized as per the applicable Accounting
      Standards.Any amount excess spent (i.e., more than 2% as specified in Section 135)
      cannot be carried forward to the subsequent years. However, the company is entitled to
      disclose in their Annual Reports of subsequent years any such excess spending of
      previous years while giving reasons for not spending in those later years.


8.    Is CSR spending required to be done by the Company directly or such amounts can
      be contributed to charity/ NGO/ section 25 company. Will such contribution qualify
      as CSR spend?


      Yes. Contribution by the Company to such trusts, NGOs etc also qualify for CSR spend if
      it meets the track record and other criteria as per Rule 4(2) of Companies (CSR Policy)
      Rules, 2014.




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Exposure Draft of FAQs on CSR by Corporate Laws & Corporate Governance Committee ICAI
9.    Net Profit calculation methodology- Net Profit as per Section 135 is required to be
      calculated as per Section 198 of the Companies Act, 2013. However, Net profits as
      defined in the Companies (CSR Policy) Rules, 2014 defines Net Profit as Net Profit
      as per Financial statements prepared in accordance with the Act.


      Since the Rules specify that the net profits are as per provisions of the Act and the
      relevant Section 135 of the Act requires such net profits calculation as per Section 198 of
      the Companies Act, the net profit shall be calculated u/s 198 of the Companies Act. This
      is based on a harmonious interpretation of the specific section in the Act and the relevant
      Rules framed under that Section.




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Exposure Draft of FAQs on CSR by Corporate Laws & Corporate Governance Committee ICAI
Section 135 of the Companies Act 2013- Corporate Social Responsibility


(1) Every company having net worth of rupees five hundred crore or more, or turnover of
    rupees one thousand crore or more or a net profit of rupees five crore or more during any
    financial year shall constitute a Corporate Social Responsibility Committee of the Board
    consisting of three or more directors, out of which at least one director shall be an
    independent director.
(2) The Board's report under Sub-Section (3) of Section 134 shall disclose the composition of
    the Corporate Social Responsibility Committee.
(3) The Corporate Social Responsibility Committee shall,--
    (a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which
         shall indicate the activities to be undertaken by the company as specified in Schedule
         VII;
    (b) recommend the amount of expenditure to be incurred on the activities referred to in
         clause (a); and
    (c) monitor the Corporate Social Responsibility Policy of the company from time to time.
(4) The Board of every company referred to in Sub-Section (1) shall,--
    (a) after taking into account the recommendations made by the Corporate Social
         Responsibility Committee, approve the Corporate Social Responsibility Policy for the
         company and disclose contents of such Policy in its report and also place it on the
         company's website, if any, in such manner as may be prescribed; and
    (b) ensure that the activities as are included in Corporate Social Responsibility Policy of the
         company are undertaken by the company.
(5) The Board of every company referred to in Sub-Section (1), shall ensure that the company
    spends, in every financial year, at least two per cent. of the average net profits of the
    company made during the three immediately preceding financial years, in pursuance of its
    Corporate Social Responsibility Policy:


    Provided that the company shall give preference to the local area and areas around it
    where it operates, for spending the amount earmarked for Corporate Social Responsibility
    activities:



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Exposure Draft of FAQs on CSR by Corporate Laws & Corporate Governance Committee ICAI
    Provided further that if the company fails to spend such amount, the Board shall, in its
    report made under clause (o) of Sub-Section (3) of Section 134, specify the reasons for not
    spending the amount.


    Explanation.--For the purposes of this section "average net profit" shall be calculated in
    accordance with the provisions of Section 198.




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Exposure Draft of FAQs on CSR by Corporate Laws & Corporate Governance Committee ICAI
                                                   SCHEDULE VII
                                                  (See sections 135)
Activities which may be included by companies in their Corporate Social Responsibility
Policies Activities relating to:--
(i)    eradicating hunger, poverty and malnutrition, promoting health care including preventive
       health care and sanitation 1including contribution to the Swach Bharat Kosh set-up by the
       Central Government for the promotion of sanitation and making available safe drinking
       water.
(ii) promoting education, including special education and employment enhancing vocation skills
       especially among children, women, elderly and the differently abled and livelihood
       enhancement projects.
(iii) promoting gender equality, empowering women, setting up homes and hostels for women
       and orphans; setting up old age homes, day care centres and such other facilities for senior
       citizens and measures for reducing inequalities faced by socially and economically
       backward groups;
(iv) ensuring environmental sustainability, ecological balance, protection of flora and fauna,
       animal welfare, agroforestry, conservation of natural resources and maintaining quality of
       soil, air and water 2including contribution to the Clean Ganga Fund set-up by the Central
       Government for rejuvenation of river Ganga;
(v) protection of national heritage, art and culture including restoration of buildings and sites of
       historical importance and works of art; setting up public libraries; promotion and
       development of traditional arts and handicrafts;
(vi) measures for the benefit of armed forces veteran, war widows and their dependents;
(vii) training to promote rural sports nationally recognized sports and Olympic sports;
(viii)contribution to the Prime Minister's National Relief Fund or any other fund set up by the
       Central Government for socio-economic development and relief and welfare of the
       Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women;
       and
(ix) contributions or funds provided to technology incubators located within academic
       institutions which are approved by the Central Government;

1
    Inserted vide Notification dated 24.10.2014
2
    Inserted vide Notification dated 24.10.2014

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Exposure Draft of FAQs on CSR by Corporate Laws & Corporate Governance Committee ICAI
       3
(x)     slum area development
       Explanation.--For the purposes of this item, the term `slum area' shall mean any area
       declared as such by the Central Government or any State Government or any other
       competent authority under any law for the time being in force.




3
    Inserted vide Notification G.S.R (E) 568 dated 06.08.2014


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Exposure Draft of FAQs on CSR by Corporate Laws & Corporate Governance Committee ICAI
     Rules for CSR under Section 135 of Chapter IX (after incorporating Amendments upto
                                              January, 2015)
                                                       New Delhi, dated 27th February, 2014


G.S.R. 129 (E).- In exercise of the powers conferred under section 135 and sub-sections (1)
and (2) of section 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby
makes the following rules. namely: -
1.      Short title and commencement. ­
        (1) These rules may be called the Companies (Corporate Social Responsibility Policy
           Rules. 2014.
        (2) They shall come into force on the 1st day of April, 2014


2.       Definitions.-
(1)     In these rules, unless the context otherwise requires' -
        (a) "Act" means the Companies Act, 2013;
        (b) "Annexure" means the Annexure appended to these rules;
        (c) "Corporate Social Responsibility (CSR)" means and includes but is not limited to:
           (i) Projects or programs relating to activities specified in Schedule VII to the Act or
           (ii) Projects or programs relating to activities undertaken by the board of directors of a
               company (Board) in pursuance of recommendations of the CSR Committee of the
               Board as per declared CSR Policy of the company subject to the condition that
               such policy will cover subjects enumerated in Schedule Vll of the Act
        (d) "CSR Committee" means the Corporate Social Responsibility Committee of the Board
           referred to in section 135 of the Act
        (e) "CSR Policy" relates to the activities to be undertaken by the company as specified in
           Schedule VII to the Act and the expenditure thereon, excluding activities undertaken in
           pursuance of normal course of business of a company):
        (f) "Net profit" means the net profit of a company as Per its financial statement prepared in
           accordance with the applicable Provisions of the Act, but shall not include the
           following, namely :-
           (i) any profit arising from any overseas branch or branches of the company' whether
               operated as a separate company or otherwise; and

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Exposure Draft of FAQs on CSR by Corporate Laws & Corporate Governance Committee ICAI
          (ii) any dividend received from other companies in India, which are covered under and
              complying with the Provisions of section 135 of the Act:
        Provided that net profit in respect of a financial year for which the relevant financial
        statements were prepared in accordance with the provisions of the Companies Act,
        1956, (1 of 1956) shall not be required to be re-calculated in accordance with the
        provisions of the Act:


        Provided further that in case of a foreign company covered under these rules, net profit
        means the net profit of such company as per profit and loss account prepared in terms of
        clause (a) of sub-section (l) of section 381 read with section 198 of the Act.


(2)   Words and expressions used and not defined in these rules but defined in the Act shall
      have the same meanings respectively assigned to them in the Act.


3.    Corporate Social Responsibility. -
(1)   Every company including its holding or subsidiary, and a foreign company defined under
      clause (42) of section 2 of the Act having its branch office or project office in Indi4 which
      fulfills the criteria specified in sub-section (l) of section 135 of the Act shall comply with the
      provisions of section 135 of the Act and these rules:


      Provided that net worth, turnover or net profit of a foreign company of the Act shall be
      computed in accordance with balance sheet and profit and loss account of such company
      prepared in accordance with the provisions of clause (a) of sub-section (1) of section 381
      and section 198 of the Act.


(2)   Every company which ceases to be a company covered under sub-section (1) of section
      135 of the Act for three consecutive financial years shall not be required to -
      (a) constitute a CSR Committee; and
      (b) comply with the provisions contained in sub-section (2) to (5) of the said section'
      till such time it meets the criteria specified in sub-section (1) of section 135




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Exposure Draft of FAQs on CSR by Corporate Laws & Corporate Governance Committee ICAI
4.    CSR Activities.-
(1)   The CSR activities shall be undertaken by the company, as per its stated CSR Policy, as
      projects or programs or activities (either new or ongoing), excluding activities undertaken
      in pursuance of its normal course of business.
(2)   The Board of a company may decide to undertake its CSR activities approved by the CSR
      Committee, through a registered trust or a registered society or a company established
      under Section 8 of the Act by the company, either singly or alongwith its holding or
      subsidiary or associate company, or alongwith any other company or holding or subsidiary
      or associate company of such other company, or otherwise:4


      Provided that-
      (i) if such trust, society or company is not established by the company either singly or
         alongwith its holding or subsidiary or associate company, or alongwith any other
         company or holding or subsidiary or associate company of such other company.5
      (ii) the company has specified the project or programs to be undertaken through these
         entities, the modalities of utilization of funds on such projects and programs and the
         monitoring and reporting mechanism.
(3)   A company may also collaborate with other companies for undertaking projects or
      programs or CSR activities in such a manner that the CSR committees of respective
      companies are in a position to report separately on such projects or programs in
      accordance with these rules
(4)   Subject to the provisions of sub-section (5) of section 135 of the Act the CSR projects or
      programs or activities undertaken in India only (hall amount lo CSR expenditure
(5)   The CSR projects or programs or activities that benefit only the employees of the company
      and their Families shall not be considered as CSR activities in accordance with section
      135 of the Act'
(6)   Companies may build CSR capacities of their own personnel as well as those of their
      Implementing agencies through Institutions with established track records of at least three
      financial years but such expenditure 6"including expenditure on administrative overheads,"


4
  Substituted vide Amendment in Rules, G.S.R. .... (E), dated 19.01.2015
5
  Substituted vide Amendment in Rules, G.S.R. .... (E), dated 19.01.2015
6
  Inserted vide Amendment in Rules, G.S.R. 644 (E), dated 12.09.2014

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Exposure Draft of FAQs on CSR by Corporate Laws & Corporate Governance Committee ICAI
      shall not exceed five percent of total CSR expenditure of the company in one financial
      year.
(7)   Contribution of any amount directly or indirectly to any political party under section 182 of
      the Act, shall not be considered as CSR activity.


5.    CSR Committees,-
1.    The companies mentioned in the rule 3 shall constitute CSR Committee as under.-
      (i) an unlisted public company or a private company covered under sub-section ( I ) of
          section I 35 which is not required to appoint an independent director pursuant to sub-
          section (4) of section 149 of the Act, shall have its CSR Committee without such
          director;
      (ii) a private company having only two directors on its Board shall constitute its CSR
          Committee with two such directors:
      (iii) with respect to a foreign company covered under these rules, the CSR Committee
          shall comprise of at least two persons of which one person shall be as specified under
          clause (d) of sub-section (1) of section 3 80 of the Act and another person shall be
          nominated by the foreign company.
(2)   The     CSR     Committee    shall   institute   a   transparent   monitoring     mechanism   for
      implementation of the CSR projects or programs or activities undertaken by the company.





6.    CSR Policy.-
(1)   The CSR Policy of the company shall, inter-alia, include the following, namely -
      (a) a list of CSR projects or programs which a company plans to undertake falling within
          the purview of the Schedule VII of the Act, specifying modalities of execution of such
          project or programs and implementation schedules for the same; and
      (b) monitoring process of such projects or programs:


      Provided that the CSR activities does not include the activities undertaken in pursuance of
      normal course of business of a company.




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Exposure Draft of FAQs on CSR by Corporate Laws & Corporate Governance Committee ICAI
      Provided further that the Board of Directors shall ensure that activities included by a
      company in its Corporate Social Responsibility Policy are related to the activities included
      in Schedule VII of the Act.


(2)   The CSR Policy of the company shall special that the surplus arising out of the CSR
      projects or programs or activities shall not form part of the business profit of a company.


7.    CSR Expenditure- CSR expenditure shall include all expenditure including contribution to
      corpus, for projects or programs relating to CSR activities approved by the Board on the
      recommendation of its CSR Committee, but does not include any expenditure on alt item
      not in conformity or not in line with activities which fall within the purview of Schedule VII of
      the Act.


8.    CSR Reporting-
(1)   The Board's Report of a company covered under these rules pertaining to a financial year
      commencing on or after the 1st day of April, 2014 shall include an annual report on CSR
      containing particulars specified in Annexure.
(2)   In case of a foreign company, the balance sheet filed under sub-clause (b) of sub-section
      (1) of section 381 shall contain an Annexure regarding report on CSR.


9.    Display of CSR activities on its website -
      The Board of Directors of the company shall, after taking into account the
      recommendations of CSR Committee, approve the CSR Policy for the company and
      disclose contents of such policy in its report and the same shall be displayed on the
      company's website, if any, as per the particulars specified in the Annexure.




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Summary of Circulars issued by the Ministry of Corporate Affairs related to CSR


S. No       GENERAL              DATE                            DESCRIPTION
         CIRCULAR NO.
    1.   General Circular    18.06.2014      Clarification    with regard      to provisions       of
         No. 21/2014                         Corporate Social Responsibility under Section
                                             135 of the Companies Act, 2013:-
                                               · Clarification with respect to CSR is as
                                                  under:-
                                                 Ø The statutory provision of Section 135 &
                                                    provisions of CSR Rules, 2014 is to ensure
                                                    that while activities undertaken in pursuance
                                                    of the CSR policy must be relatable to
                                                    Schedule VII of the Companies Act, 2013,
                                                    the entries in the said schedule VII must be
                                                    interpreted liberally so as to capture the
                                                    essence of the subjects enumerated in the
                                                    said Schedule. The items enlisted in the
                                                    amended Schedule VII of the Act, are broad
                                                    based & are intended to cover a wide range
                                                    of activities as mentioned in the Annexure:-
                                                 Ø CSR activities should be undertaken by the
                                                    companies in project/programme mode [as
                                                    referred in Rule 4(1) of Companies CSR
                                                    Rules, 2014]. One-off events such as
                                                    marathons/           awards/        charitable
                                                    contribution/                   advertisement/
                                                    sponsorships of TV programmes etc.
                                                    would not be qualified as part of CSR
                                                    expenditure.
                                                 Ø Expenses incurred by companies for the



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                                                       fulfillment         of   any   Act/Statute    of
                                                       regulations (Such as Labour Laws, Land
                                                       Acquisition Act etc) would not count as
                                                       CSR expenditure.
                                                 Ø Salary paid by the companies to regular
                                                       CSR staff as well as to volunteers of the
                                                       companies (in proportion to company's
                                                       time/hours spent specifically on CSR) can
                                                       be factored into CSR project cost as part
                                                       of the CSR expenditure.
                                                 Ø "Any Financial year" referred under Sub-
                                                       Section (1) of Section 135 of the Act read
                                                       with Rule 3(2) of Companies CSR Rule,
                                                       2014 implies any of the three preceding
                                                       financial years.
                                                 Ø Expenditure incurred by Foreign Holding
                                                       Company for CSR activities in India will
                                                       qualify as CSR spend of the Indian
                                                       Subsidiary if, the CSR expenditures are
                                                       routed through Indian Subsidiaries & if
                                                       the Indian Subsidiary is required to do so
                                                       as per Section 135 of the Act.
                                                 Ø `Registered Trust' (as referred in Rule 4(2)
                                                       of the Companies CSR Rules, 2014) would
                                                       include Trusts registered under Income
                                                       Tax Act, 1956 for those states where
                                                       registration of Trust is not mandatory.
                                                 ii)    Contribution to Corpus of a Trust/
                                                        Society/Section 8 Companies etc. will
                                                        qualify as CSR expenditure as long as
                                                        (a)          the        Trust/Society/Section-8



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Exposure Draft of FAQs on CSR by Corporate Laws & Corporate Governance Committee ICAI
                                                         companies etc. is created exclusively
                                                         for undertaking CSR activities or (b)
                                                         where the corpus is created exclusively
                                                         for a purpose directly relatable to a
                                                         subject covered in Schedule VII of the
                                                         Act.
    2.   General Circular    17.09.2014      Clarification      with regard     to provisions     of
         No. 36/2014                         Corporate Social Responsibility (CSR) under
                                             Section 135 of the Companies Act, 2013:-
                                             · In continuation of the General Circular No. 21 of
                                                 2014        dated    18.06.2014     the    following
                                                 clarifications are hereby issued:
                                                 i)      Rule 4(6) of the Companies (Corporate
                                                         Social Responsibility Policy) Rules, 2014 as
                                                         notified on 27.02.2014 has been amended
                                                         by notification dated 12.09.2014; and
                                                 iii)    Consequently, clarification (iv) in General
                                                         Circular No. 21 of 2014 dated 18.06.2014,
                                                         stands omitted i.e.,


                                                        "Salary paid by the companies to regular
                                                        CSR staff as well as to volunteers of the
                                                        companies (in proportion to company's
                                                        time/hours spent specifically on CSR) can
                                                        be factored into CSR project cost as part
                                                        of the CSR expenditure."


                                                        stands omitted




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Exposure Draft of FAQs on CSR by Corporate Laws & Corporate Governance Committee ICAI

 
 
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