Corporate Social Responsibility in India

At a time when the world is facing problems like poverty, lack of education, hunger etc. coupled with global warming, the role of corporate entities in revitalising the society cannot be underestimated. The big corporate houses around the world thrive on various resources be it the economic resources, natural resources or the human capital etc. and thus, must not only focus on maximising their profits but also give back to the society. The term “Corporate Social Responsibility” has not been defined in a water tight compartment however, it is based on the principle that the corporate entities must fulfil certain social obligations while working towards their personal goals.

The concept of CSR (Corporate Social Responsibility) was first introduced in the Companies Act, 2013 in 2014 making India one of the first countries to make it mandatory for companies 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 i.e. the companies falling under the purview of Section 135(1) of the Act to constitute a Corporate Social Responsibility Committee.[1] The Act further enlists the activities that come under the purview of CSR which included activities related to eradicating extreme hunger and poverty, promotion of education, promoting gender equality and empowering women, reducing child mortality and improving maternal health, combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases, ensuring environmental sustainability etc.[2] The amendment in the Act has resulted in a cumulative amount of ?47,000 crore being spent on CSR by the corporate entities in India from financial year 2014-2015 to 2017-2018.[3]  Further, the Act also provides for penalties in cases of non-compliance of the CSR guidelines as the corporate houses may not oblige with the same in absence of any sanctions. As a result of these rules, the CSR spending between these financial years has been the maximum in education, health, providing access to clean drinking water etc. according to the data collected by the Ministry of Corporate Affairs.[4]

However, the provision regarding the transfer of the amount which is not spent on any of the activities listed under Schedule VII of the Act to funds set up the state or the central government raises eyebrows. The State or the Central government will not be held accountable with regards to the usage of that fund whereas a penalty cannot be imposed on the companies in case of non-disclosure of CSR details even if the company has rightfully spent on the CSR activities.[5] Further, the expenditure on CSR activities is non-deductible for tax unless it comes within the purview Section 30 to 36 of the Income Tax Act, 1961. The CSR expenditure not only contributes to the social and economic development of the country but the spender’s i.e. the corporate entity’s own goodwill in the market as well. The idea and objective behind CSR is a noble one but it is important to understand that the fulfilment of the objectives depends on capacity of the corporate houses to adapt according to the changes introduced by the government which in turn is dependent on the constant cooperation and assistance of the government.

[1] Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India).

[2] Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India).

[3]https://economictimes.indiatimes.com/news/company/corporate-trends/view-unclutter-the-spending/articleshow/71318226.cms

[4] https://www.livemint.com/companies/news/who-gains-the-most-from-corporate-charity-1566536241870.html

[5] Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India).