Applicability to Companies
Companies are required to constitute a CSR Committee if they have the following during any financial year:
- Net worth of rupees 500 crore or more, or
- Turnover of rupees 1000 crore or more, or
- Net profit of rupees 5 crore or more.
The provisions of CSR also apply to the foreign branch/project office of a foreign company if it meets the above criteria. The criteria apply only to business operations in India in the case of a foreign Company/Project Office.
Exemptions and Penalization
Should a company cease to comply with the CSR provisions for three consecutive financial years, it is no longer required to.
However, companies that do not follow CSR best practices and refuse to participate in the CSR Counselor’s Office or NCP dispute resolution processes will face consequences such as the withdrawal of Government of Canada support in foreign markets.
International Perspective and Legal Framework
The implementation of CSR is significant for foreign companies with branches or project offices in India, as they are governed by the provisions of respective countries’ charters. The challenges include practical hurdles as the CA 2013 sections for computation of financial accounts of foreign companies are yet to be notified.
The new section 135 introduced in the Companies Act, 2013, mandates certain companies to spend 2% of their profits on CSR. This also applies to multinational companies operating in India through their branches or offshore delivery centers.
The Role of CSR in International Business
CSR plays a crucial role in promoting sustainable development globally by integrating social and environmental considerations into business strategies. This responsibility extends to the effects of a company’s decisions on society and the environment, contributing to sustainable development and complying with laws and international standards of behavior.
Why Social Responsibility Matters in Business
Being socially responsible can bolster a company’s image and brand. Formal CSR programs can boost employee morale and productivity. The ISO 26000 standards define CSR as an organization’s responsibility for the impacts of its decisions on society and the environment.
The primary purpose of CSR is to ensure business operations positively impact the community, environment, and stakeholders, driving consumer engagement by creating authentic brands. CSR refers to self-regulation measures taken by businesses to contribute to societal goals and is a strategic business management concept distinct from charity or philanthropy.
Who Are Exempted From CSR?
Companies that meet certain financial thresholds are required to undertake CSR activities. However, specific exemptions exist:
- Exemption from the requirement to constitute a corporate social responsibility committee.
- Exemption from the requirement to undertake any corporate social responsibility activity.
Exemptions are available only to those companies eligible for corporate social responsibility due to their profits. Additionally, CSR expenditures are not considered charitable contributions for tax purposes and do not receive specific tax exemptions.