Corporate Social

Responsibility Rules,
2014
Rules of Section 135 of Companies Act 2013 of the Government of India

Compiled by NextGen PMS Pvt Ltd.

1. Commencement

Draft Rules Final Rules

Shall come into force on the date of their Shall come into force on the 1st Day of
publication in the official gazette and shall be April, 2014
applicable from the financial year 2014-15

Implication: Compliance begins on 1st April 2014

2. Definitions
a) Act:
Companies Act 2013

b) Annexure:
Reporting format appended to the rules

c) CSR:
CSR means and includes, but is not limited to -

Draft Rules Final Rules

Projects or programmes under Schedule VII of
draft rules
Process by which organisation thinks and evolves
relationships with stakeholders for common good
and demonstrates its commitment in this regard
by adoption of appropriate business processes
and strategies.
Projects or programmes under Schedule
VII of final rules
Projects or programmes relating to
activities undertaken by the Board in
pursuance of recommendation of the CSR
Committee of the Board as per the
declared CSR Policy of the company
subject to the condition that such policy
will cover subjects enumerated in the
Schedule VII of the Act

Implications:
1) CSR includes all direct programmes under Schedule VII of final rules
2) Any other activities taken up by the board as recommended by the CSR Committee in
the CSR policy of the company intended for causes/beneficiaries as listed in Schedule
VII can also be CSR activities

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 d) CSR Committee:
Corporate Social Responsibility Committee referred to in Section 135 of the Act

e) CSR Policy:
Activities of Schedule VII that are to be undertaken by companies and the
expenditure thereon.

“Excluding, activities undertaken in pursuance of normal course of business of a company”

Key Changes:
CSR to not include activities that are Business-As-Usual for companies
 Implies that companies have to develop frameworks to define what is
Business-As-Usual for them

f) Net Profit:
Net profit of company as per financial statements prepared in accordance with
provisions of Companies Act
Draft Rules Final Rules
Net Profits = Profits Before Tax 1) Net Profits = Calculated as per Section 198

In case of foreign company covered under the rules,

Does not include:
Profits arising from branches outside India
Net Profit = Net profit of such company as per profit
and loss account prepared in terms of clause (a) of
sub-section (1) of section 381 read with section 198
of the Act
2) Does not include:
3)
4) 1. Profits arising from any overseas branch or
branches of the company, whether operated as a
separate company or otherwise
5)
6) 2. Any dividend received from other companies in
India which are covered under and complying with
Section 135 of the Act
7)

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 Key Changes:
a) Profits calculated as per Section 198 and NOT Profit Before Tax
b) Clarity on inclusion of profits from foreign operations
c) Calculation of profits to not include dividends from other companies complying with
Section 135
d) No requirement to show re-calculation of the profits apart from that shown in financial
statements prepared according to the Companies Act, 1956

3. Applicability

1. Every company including its holding or subsidiary in India, and a foreign company defined under
clause (42) of section 2 of the Act having its branch office or project office in India, which fulfils
the criteria below shall comply with the provisions of Section 135 of the Act and these rules-

a) net worth of rupees five hundred crore or more, or

b) turnover of rupees one thousand crore or more, or
c) net profit of rupees five crore or more during any financial year

Net worth, turnover or net profit of foreign companies to be computed according to the balance sheet
and profit and loss account of the company prepared according to Section 381 and 198 of the Act

2. Exclusions:

Implication:
Companies which do not get covered in any of the above criteria- a, b or c in point 1
above- for three financial consecutive years need not comply with the Act till the time
they meet the criteria

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 4. CSR Activities –
1. CSR Activities Include:

Implications:
All activities stated in the CSR Policy of the company are considered CSR, EXCLUDING
those activities that are Business – As – Usual
 Companies will need to develop frameworks to define what is Business-As-Usual for
them

2. Mode of Implementation:
Activities can be conducted/implemented through –
a. Registered Trusts, or
b. Registered Societies, or
c. Company established by the reporting company, or its holding/subsidiaries/associates
under Section 8 of the Act,

Provided –
(i) If such trusts or societies are NOT set up by the reporting company or its
holding/subsidiaries/associates, it should have an established track record
of three years in similar programmes and projects

(ii) Projects or programmes to be undertaken through these entities should

be specified with
a. Modalities of utilisation of funds on these programs
b. Monitoring and reporting mechanisms

3. Collaborations:

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 Companies may collaborate with other companies to pool in resources for any CSR activities.

Implication:
CSR Committees of respective companies need to report separately on such projects in
accordance with these rules

Exclusions:

4. Activities undertaken outside India do not qualify as CSR

a. Only such CSR activities are considered in the expenditure, that are undertaken in India

5. Activities that benefit ONLY the employees of the company and their families are not considered
CSR activities.

6. Capacity Building

Implication-
Companies can undertake capacity building for CSR within their organisation as well as in
their implementing agencies, provided –
1) The institutions through which the capacity building is undertaken, have
established track record of at least three financial years
2) Expenditure towards the capacity building cannot exceed five percent of the total
CSR expenditure in one financial year (cannot exceed 5% of the 2% CSR corpus)

7. Contribution to any political parties directly or indirectly, cannot qualify as CSR, as per Section
182 of the Act.

5. CSR Committees-
Every company under the ambit of the law has to constitute a CSR Committee of the Board
consisting of 3 or more directors, with at least one independent director

- Composition of the Committee to be disclosed in the Directors’ Report

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 - Responsibilities of the Committee –

o Formulate a CSR Policy indicating the Schedule VII activities that are being taken up by
the company
o Suggest expenditure towards each activity
o Monitor the CSR Policy from time to time

Key Implication:
Companies will have to establish a transparent monitoring mechanism.
The CSR Committee of the Board will be liable and responsible for the same

- Responsibilities of the Board –

o Ensure that the CSR activities enlisted in the CSR Policy are undertaken
o In case Company fails to spend, Board to specify the reason for not spending
o Board to also ensure that activities included in the policy are related to Schedule VII
1.

Key Additions-
(i) Unlisted public company or private company which is not required to appoint
an independent director pursuant to sub section (4) of section 149 of the Act,
can have CSR Committee without an independent director
(ii) Private Companies having only two directors on the Board can constitute a
committee with two directors
(iii) For foreign companies, CSR committee needs to have at least two members –
one of whom is resident in India as specified under clause (d) of Section 380
of the Act, and another to be nominated by the foreign company

2. CSR Committee to institute a transparent monitoring mechanism for implementation of the CSR
projects or programs or activities undertaken by the company

6. CSR Policy
1. Policy to specify

(a) List of projects and programmes to be undertaken by company within purview of Schedule
VII of the Act, including modalities of execution and implementation schedules

(b) Monitoring processes for the projects and programmes

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

Key Additions –
- Policy to specify that CSR activities do not include activities that fall under BAU
- Board of Directors to ensure that activities included by company in its CSR Policy are
related to activities included in Schedule VII of the Act

 Policy will also need to specify the framework to define what is Business-As-Usual
for the company

2. CSR Policy of the company should specify that the profits arising from CSR projects or
programmes or activities, if any, will not be a part of the business profits of the company

7. CSR Expenditure
At least 2% of average net profits of the company made during the three immediately preceding
financial years

- Companies to give preference to local area and areas around them where they operate

- Includes:
o Contribution to corpus or expenditure on projects and programmes relating to CSR
activities approved by the Board on the recommendations of the Committee

- Does not include:

o Any expenditure on an item not in conformity or not in line with activities that fall
within the purview of Schedule VII of the Act.

8. CSR Reporting
1. The Board’s Report of company published for financial year beginning on or after 1st April 2014
should include an annual report on CSR

2. For foreign companies, the CSR report to be filed along with the balance sheet as under Section
381

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 9. Display of CSR Activities on Website
Board of Directors of the company to-

o Approve the CSR Policy after taking recommendations from the CSR Committee
o Disclose the CSR Policy in the Directors’ Report
o Place the policy and report on the company website

Annexure – Format for Reporting

1. Brief outline of CSR policy including
a. Overview of projects and programmes to be undertaken
b. Web Link to view the policy and the projects and programmes

2. Composition of CSR Committee

3. Average Net Profit of last three financial years

4. Prescribed CSR Expenditure (2% of Avg. Net Profits)

5. Details of spend-
a. Total amount to be spent for the financial year
b. Amount unspent, if any
c. Manner in which amount was spent in the below format:
Sl CSR Sector in Projects/Programmes: Project/ Amount spend – Cumulative Amount
no. Activity which 1) Local area or Programme- Subheads: expenditure spent:
Activity is other wise Budget 1) Direct up to Directly or
covered 2) State and spend on reporting through
district where projects period implement-
undertaken 2) Overheads ing
Agency*

*Details of implementing agency, if any

6. In case company has failed to spend the two percent, company to provide in the Board report,
reasons for not spending the entire 2%

7. Responsibility Statement from the CSR Committee that the implementation and monitoring of the
CSR policy is in compliance with the objectives and policies of the company

Signed by-

1. CEO or MD
2. Chairman, CSR Committee
3. For foreign companies, designated person resident in India as per sub section (1) of section 380
of the Act

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Schedule VII
Draft Rules
Additions of specific beneficiaries and areas of intervention
Eradicating extreme hunger and poverty
Promotion of education
Promoting gender equality and
empowering women
Ensuring environmental sustainability
Added
Added
Added
Added
Added
Combinations
Reducing child mortality and improving
maternal health
Combating human immunodeficiency
virus, acquired immunodeficiency
syndrome, malaria and other diseases
Employment enhancing vocational skills
Contribution to the Prime Minister’s
National Relief Fund or any other fund set Fund or any other fund set up by the Central
up by the Central Government for socio-
economic development and relief and
welfare of the Scheduled Castes, the
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Final Rules
Eradicating hunger, poverty and malnutrition,
promoting preventive health care and sanitation and
making available safe drinking water
Promoting education, including special education and
employment enhancing vocation skills especially among
children, women, elderly, and the differently abled and
livelihood enhancement projects
Promoting gender equality, empowering women,
setting up homes and hostels for women and orphans;
setting up old age homes, day care centers and such
other facilities for senior citizens and measures for
reducing inequalities faced by socially and
economically backward groups
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
Measures for the benefit of armed forces veterans, war
widows and their dependents
Protection of natural 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
Training to promote rural sports, nationally recognised
sports, Paralympic sports and Olympic sports
Contributions or funds provided to technology
incubators located within academic institutions which
are approved by Central Government
Rural development projects
Included under “Promoting gender equality,
empowering women...”
Included under “Eradicating hunger, poverty and
malnutrition...”
Included under “Promoting gender equality,
empowering women...”
No Change
Contribution to the Prime Minister’s National Relief
Government for socio-economic development and relief
and welfare of the Scheduled Castes, the Scheduled
Tribes, other backward classes, minorities and women
 Scheduled Tribes, other backward classes,
minorities and women
Deletions
Social business projects Removed
Such other matters as may be prescribed Removed

Key Point to Note:

Sub Section (c) of the rules mention that CSR includes but is not limited to

“Projects or programmes relating to activities undertaken by the Board in pursuance of

recommendation of the CSR Committee of the Board as per the declared CSR Policy of the company
subject to the condition that such policy will cover subjects enumerated in the Schedule VII of the Act”

Implications:
- Schedule VII has been expanded to include more specific beneficiaries and areas of
intervention
- Some activities have been combined with other related beneficiaries and impact
centers
- Companies can choose to undertake initiatives that may not be specifically listed in
the Schedule VII but have similar impacts on the same subject beneficiaries,
provided the activity is not undertaken in pursuance of normal course of business
(Business-As-Usual)

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