Section 135 of the Companies Act 2013

Section 135 of the Companies Act 2013

We help companies understand their CSR duties under Section 135 of the Companies Act 2013. This is key for companies with big finances. They must set up a Corporate Social Responsibility Committee.

Companies must spend at least 2% of their profits on CSR. This is a big part of their business. Knowing about CSR is important for companies to follow the rules and help society in India.

We aim to give a detailed look at Section 135. We’ll cover CSR duties, Corporate Social Responsibility in India, and what companies need to do. We’ll also talk about CSR rules, like what to do with leftover money and how to spend it on CSR activities.

Key Takeaways

  • Companies with a net worth of ₹500 crores or more, turnover of ₹1,000 crores or more, or net profit of ₹5 crores or more are subject to Section 135.
  • CSR Committee is required for companies with a net worth of ₹500 crores or more, turnover of ₹1,000 crores or more, or net profit of ₹5 crores or more.
  • Companies must spend at least 2% of their average net profits on CSR activities.
  • Unspent CSR amounts must be transferred to a Special Account within 30 days of the financial year-end.
  • Companies must disclose their CSR activities in their annual report, specifying the nature and outcomes of such initiatives.
  • CSR obligations are a statutory requirement for companies to promote social welfare and community engagement in India.

Understanding Section 135 of Companies Act

Section 135 of the Companies Act, 2013, requires companies to give at least 2% of their profits to social causes. This rule is for companies with big assets, high sales, or profits over Rs. 5 crore.

When figuring out profits for social giving, companies must follow Section 198 of the Act. They can’t subtract some costs like taxes and voluntary payments from their profits.

Companies that must follow Section 135 compliance need a CSR Committee. This group has at least three directors, including one independent one. They make sure the company spends enough on social causes.

CSR spending

Here are important details for Section 135 compliance and CSR spending:

  • Net worth threshold: Rs. 500 crore
  • Turnover threshold: Rs. 1000 crore
  • Net profit threshold: Rs. 5 crore
  • CSR spending requirement: 2% of average net profits

By knowing Section 135 and CSR spending rules, companies can meet their Section 135 compliance duties. They help society improve.

ThresholdAmount
Net worthRs. 500 crore
TurnoverRs. 1000 crore
Net profitRs. 5 crore

Eligibility Criteria for CSR Compliance

We explain what makes a company eligible for CSR compliance. This includes a net worth of ₹500 crore or more, a turnover of ₹1,000 crore or more, or a net profit of ₹5 crore or more. These financial levels decide if a company must follow CSR rules under Section 135 of the Companies Act, 2013.

It’s key to know the role of the CSR committee in making CSR policies. The CSR committee is in charge of making sure CSR actions fit the company’s policy and goals.

Net Worth Threshold

A company’s net worth is very important for CSR compliance. With a net worth of ₹500 crore or more, companies need a strong CSR policy. This policy is made by the CSR committee.

Turnover Requirements

Companies also need to meet a turnover requirement of ₹1,000 crore or more. This makes sure big companies with lots of money help out with CSR actions. The CSR committee oversees these efforts as part of their job.

Net Profit Calculations

Net profit calculations are also key for CSR compliance. With a net profit of ₹5 crore or more, companies must know their CSR duties well. This is helped by the CSR policy making process.

CSR Eligibility Criteria

Knowing these criteria helps companies follow CSR rules. This is important for their good name and social duty. The CSR committee is very important in this. Their work in making CSR policies helps companies meet their CSR duties.

Eligibility CriteriaThreshold
Net Worth₹500 crore or more
Turnover₹1,000 crore or more
Net Profit₹5 crore or more

Mandatory CSR Spending Requirements

Corporate Social Responsibility (CSR) is key for companies. They must spend at least 2% of their profits from the last three years on CSR. This rule helps companies give back to society and the environment.

Calculating profits is important for CSR spending. Companies use their profits from the last three years to find the average. For example, if a company’s average profit is ₹100 crores, they must spend ₹2 crores on CSR.

Some companies must follow CSR rules. This includes those with a net worth over ₹500 crores, a turnover of more than ₹1,000 crores, or a net profit of ₹5 crores or more. Not following these rules can lead to fines, like twice the unspent CSR amount or ₹1 crore, whichever is less.

CriteriaThreshold
Net Worth₹500 crores
Turnover₹1,000 crores
Net Profit₹5 crores

In summary, CSR spending is vital for companies. They must meet the spending requirements to avoid fines and help society.

Formation and Role of CSR Committee

A well-structured CSR committee is key to effective CSR compliance. It plays a vital role in creating and suggesting a CSR policy to the Board. This is essential for companies to fulfill their CSR duties.

The CSR committee usually has three or more directors. At least one must be an independent director. This mix of perspectives and expertise helps the committee make smart CSR decisions. Companies must spend at least 2% of their profits on CSR activities. These can include fighting hunger, promoting education, and protecting the environment.

Some key duties of the CSR committee include:

  • Creating and suggesting a CSR policy to the Board
  • Proposing CSR activities and spending
  • Watching over and checking CSR activities

Having a clear CSR policy is vital for companies. It outlines their CSR approach and activities. The policy should match the CSR committee’s structure and be updated often to stay effective.

In conclusion, the CSR committee’s formation and role are essential for a company’s CSR strategy. With a well-structured committee and a clear policy, companies can meet their CSR duties and positively impact society.

Implementation Framework for CSR Activities

Implementing CSR activities is key for companies to help society. The process includes finding the right projects, working with partners, and checking progress. Companies with big profits must spend 2% of their net profit on CSR.

Projects can be in education, healthcare, or protecting the environment. Companies team up with non-profits, NGOs, or government agencies to do these projects. Effective monitoring mechanisms are vital to make sure these projects work well and help society.

  • Education and literacy programs
  • Healthcare and sanitation initiatives
  • Environmental sustainability projects
  • Rural development and poverty alleviation programs

CSR projects help society and improve a company’s image. We think CSR is a big part of a company’s strategy. It benefits both the company and society.

Reporting and Disclosure Requirements

Exploring Corporate Social Responsibility (CSR) shows us the need for clear reporting and disclosure. We must share our CSR policy and the CSR Committee’s makeup in the Board’s report. We also need to detail our CSR spending and activities. This openness is key for CSR reporting, building trust and accountability with stakeholders.

The CSR disclosure rules are set out in Section 135 of the Companies Act, 2013. Companies must share all about their CSR work. This includes how much they spent, what they did, and the results. The goal is to make this info clear and simple for everyone to grasp.

Important aspects of CSR reporting and CSR disclosure include:

  • Sharing the CSR policy and the CSR Committee’s makeup in the Board’s report
  • Detailing CSR spending and activities
  • Keeping CSR reporting open and accountable
  • Making the information clear and easy to understand

By sticking to these rules and being open with CSR disclosure, companies show they care about social responsibility. This builds trust with stakeholders. As we move forward in CSR, focusing on CSR reporting and disclosure is vital. It ensures our efforts make a real difference.

CategoryRequirement
CSR PolicyMust be disclosed in the Board’s report
CSR Committee CompositionMust be disclosed in the Board’s report
CSR SpendingMust be disclosed in the Board’s report

Conclusion: Ensuring Effective CSR Compliance

Exploring Section 135 of the Companies Act 2013 shows that CSR compliance is more than a law. It’s a chance for companies to positively impact society. By following CSR rules, businesses can help others and improve their own image and future.

Seeing CSR compliance as part of a company’s strategy is key. This way, businesses can tackle big social and environmental problems. Doing so, they can make a real difference and gain value for everyone involved.

By following Section 135’s spirit and doing more than the basics, we can build a culture of corporate social responsibility. This benefits both the community and the company. It’s a win-win that leads to a better, more fair future.

FAQ

What is Section 135 of the Companies Act 2013?

Section 135 of the Companies Act 2013 is a key part of promoting corporate social responsibility (CSR) in India. It requires eligible companies to have a CSR Committee. They must also spend at least 2% of their profits on CSR activities.

What are the key definitions and terms related to CSR under Section 135?

Section 135 explains important terms like “CSR,” “Net Profit,” “Net Worth,” and “Turnover.” These terms help figure out if a company must follow CSR rules.

What are the eligibility criteria for CSR compliance under Section 135?

Companies with a net worth of ₹500 crore or more, or a turnover of ₹1,000 crore or more, or a net profit of ₹5 crore or more must follow CSR rules under Section 135.

How is the mandatory CSR spending calculated under Section 135?

Companies that meet the criteria must spend at least 2% of their average net profits from the last three years on CSR activities.

What are the responsibilities of the CSR Committee formed under Section 135?

The CSR Committee is in charge of creating the CSR policy and suggesting how much to spend on CSR. They also check if CSR activities are being done right.

What are the eligible CSR activities under Section 135?

Section 135 lists many CSR activities that are allowed. These include fighting poverty, improving education, protecting the environment, and preserving national heritage, among others.

What are the reporting and disclosure requirements under Section 135?

Companies must report on their CSR policy, activities, and spending in their Board’s report and on their website.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top