Corporate Social Responsibility Under Section 135 of the Companies Act, 2013

What is Corporate Social Responsibility? Definition

Corporate Social Responsibility is a component of a company’s corporate governance strategy and can affect all aspects of the business, including operations, human resources, production, supply chain, health and safety, and more.

In general, “Corporate Social Responsibility” refers to but is not limited to projects or programs linked to the activities listed in Schedule VII of the Act.

Fine & Penalties in Corporate Social Responsibility

If a company fails to comply with CSR provisions related to spending or transfer of unspent amounts, it is liable to a penalty of:

• Twice the unspent amount or ₹1 crore (whichever is less) for the company
• 1/10th of the unspent amount or ₹2 lakh (whichever is less) for officers in default

The law no longer provides for imprisonment for CSR non-compliance.

Importance of Corporate Social Responsibility (CSR)

Here’s why companies should adopt CSR policies as soon as possible:

• Builds Brand Reputation & Trust: CSR enhances a company’s public image by showing commitment to social and environmental causes. Customers are more likely to trust and support brands that act responsibly, leading to stronger goodwill and long-term brand loyalty.
• Strengthens Stakeholder Relationships: CSR helps build positive relationships with stakeholders, including customers, employees, investors, and local communities. When businesses contribute to society, they gain support, cooperation, and credibility from all associated groups.
• Improves Employee Engagement & Retention: Employees feel proud to work for socially responsible organizations. CSR initiatives boost morale, increase job satisfaction, and help attract and retain talented professionals who value purpose-driven work environments.
• Contributes to Sustainable Development: CSR encourages companies to adopt environmentally and socially sustainable practices. This includes reducing carbon footprints, supporting education, healthcare, and promoting inclusive growth for long-term societal benefit.
• Ensures Legal Compliance: Under the Companies Act, 2013, certain companies must spend a portion of profits on CSR activities. Compliance helps avoid penalties and ensures the company meets its statutory obligations responsibly.

Now that you are aware of the importance of Corporate Social Responsibility, it is crucial to know the different types available to choose from.

Types Of CSR in India

Corporate Social Responsibility (CSR) is classified into four categories:

1. Environmental Responsibility

Environmental responsibility is the concept that businesses should act in a manner that is ecologically beneficial as well as feasible. It is one of the most popular types of corporate social responsibility. Some businesses refer to such programs as “environmental stewardship.”

Companies that want to be more environmentally conscious might do so in a variety of ways:

• Pollution, greenhouse gas emissions, single-use plastics, water use, and general waste are all being reduced.
• The use of renewable energy, sustainable resources, and recycled or partially recycled materials is becoming more common.
• Planting trees, supporting research, and donating to related causes are examples of ways to mitigate harmful environmental impacts.

2. Ethical Responsibility

The goal of ethical responsibility is to ensure that an organization operates fairly and ethically. All stakeholders, including leadership, investors, employees, suppliers, and customers, should be treated fairly by organizations that embrace ethical responsibility.

Companies can take on ethical responsibility in a variety of ways. For example, a business may set its own higher wage. Similarly, a company may demand that products, ingredients, materials, or components be sourced under free trade principles. Many businesses have procedures in place to verify that they are not purchasing products made by slaves or children.

3. Philanthropic Responsibility

Philanthropic duty refers to a company’s goal of actively improving the world and society.

Organizations inspired by philanthropic duty often donate a portion of their earnings in addition to being as ethically and environmentally friendly as possible. Many businesses donate to charities and nonprofits that coincide with their guiding missions, while others donate to worthwhile causes that have nothing to do with their business. Others go so far as to establish their charitable trust or organization to help others.

4. Economic Responsibility

Economic responsibility refers to a company’s practice of basing all of its financial decisions on its commitment to do good in the areas mentioned above. The ultimate goal is to positively impact the environment, people, and society, not just maximize profits.

CSR Applicability in India

Under the Companies Act, 2013, CSR provisions apply to companies that meet any of the following financial thresholds during the immediately preceding financial year:

• Net worth of ₹500 crore or more, or
• Turnover of ₹1,000 crore or more, or
• Net profit of ₹5 crore or more

Key Applicability Points

• CSR provisions apply to all companies, including private limited, public limited, holding, and subsidiary companies, as well as foreign companies having a branch or project office in India.
• Once a company meets any of the above criteria, it must constitute a CSR Committee of the Board.
• The company is required to spend at least 2% of its average net profits (of the last three financial years) on CSR activities.
• If the company ceases to meet the criteria for three consecutive financial years, it is no longer required to comply with CSR obligations until it meets the criteria again.

List of Permitted CSR Activities Under Schedule VII 

Here’s a table-format summary of permitted CSR activities under Schedule VII of the Companies Act, 2013:

CSR Activity Category	Permitted Activities (Illustrative)
Eradicating Hunger & Poverty	Hunger eradication, malnutrition, healthcare, sanitation, and safe drinking water
Promoting Education	Education, special education, vocational skills, livelihood enhancement
Gender Equality & Women Empowerment	Women’s empowerment, homes for women/orphans, old age homes, and reducing inequalities
Environmental Sustainability	Ecological balance, biodiversity, conservation of resources, pollution control
Protection of National Heritage	Restoration of monuments, promotion of arts and culture
Support to Armed Forces Veterans	Measures for armed forces veterans, war widows, and dependents
Promotion of Sports	Training in sports, rural sports, nationally recognized sports, Paralympic/Olympic sports
Contribution to Government Funds	PM National Relief Fund, PM CARES Fund, and other notified funds
Rural Development Projects	Rural infrastructure, livelihood projects, development initiatives
Slum Area Development	Improvement and development of slum areas
Disaster Management	Relief, rehabilitation, and reconstruction activities

Role of the Board of Directors in CSR

The Board of Directors has the following responsibilities:

• Approve the Company’s CSR policy after considering the suggestions of the CSR Committee.
• The Board shall guarantee that only those actions are carried out that are specified in the policy.
• According to the CSR policy, the Board of Directors must ensure that the company spends a minimum of 2% of its average net income over the previous three financial years in each financial year.
• The average net earnings for the financial years since the company’s incorporation shall be determined if it has not completed three financial years since its incorporation.

CSR Policy and Activities

The CSR Policy outlines the activities and expenditures that the Company will undertake under Schedule VII of the Act. The activities should not be the same as those carried out in the normal course of business by the corporation.

• The Board should post the contents of the CSR Policy on the company’s website.
• The company must carry out the actions outlined in the policy.
• The Company can collaborate with other companies on projects, initiatives, or CSR activities and report separately on each of these activities.
• The company monitors projects or programs under the CSR policy.

CSR Activities

• Working with partners who follow ethical business practices is required by company standards.
• Profits are reinvested in health and safety and environmental activities.
• Supporting charitable groups in a business’s communities is a good idea.
• At the executive level, promoting equal opportunity for men and women
• Some components of corporate social responsibility may be mandated by law. Banks and hospitals, for example, are mandated by law to safeguard personal information. Others are entirely optional.

Scope of CSR: Objectives of Corporate Social Responsibility

In today’s capitalist economy, the relevance and importance of CSR are critical to ensuring the long-term viability of life and business. Key objectives of corporate social responsibility are:

a. Enhances Public Reputation

Public image improves with CSR Registration. This is critical because customers judge your public image before determining whether or not to buy from you. Something as easy as staff members volunteering an hour a week at a charity demonstrates that you’re a company that cares about others. As a result, you’ll come across as much more appealing to customers.

b. Brand Recognition

The information about your company’s involvement with CSR will spread if you are devoted to ethical behavior. As a result, more people will hear about your business, increasing brand awareness.

c. An edge over the competition

You will distinguish yourself from your industry’s competitors if you embrace CSR. You position yourself as a company that is committed to going above and beyond by taking social and environmental considerations into account.

d. Employee engagement is higher

You must ensure that your staff is aware of your CSR efforts, just as you must ensure that they are aware of your customer engagement tactics. Employees prefer working for a company that has a positive public image more than one that does not. Furthermore, demonstrating your commitment to issues such as human rights increases your chances of attracting and retaining outstanding applicants.

e. Support Nation-Building

CSR aligns corporate efforts with national development goals such as rural development, gender equality, sanitation, and public welfare, contributing to the country’s overall progress.

f. Cost Savings

Previously, functioning sustainably came at a high financial cost to the organization. It would have been shocking a few years ago if cost reductions were one of the elements in the importance of CSR. Responsible companies have discovered breakthrough technologies that have lowered operational expenses.

When you adopt CSR, your employees will reap a variety of rewards. Your office will be a more cheerful and productive environment, and you will support personal and professional growth. Fill the form now to apply for your company’s CSR License with expert help from RegisterKaro.

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