Eligibility For Receiving CSR Funds In India: Criteria, Regulations, And Key Requirements

Corporate Social Responsibility (CSR) has become a crucial aspect of corporate governance in India, following its mandatory implementation under the Companies Act, 2013. CSR enables businesses to contribute to societal development, fostering a sustainable and responsible corporate ecosystem. One of the most critical aspects of CSR is the eligibility for receiving CSR funds in India, which determines the entities and organizations that can benefit from corporate contributions for social welfare activities.

For companies meeting the specified financial criteria—such as a net worth of ₹500 crore or more, an annual turnover of ₹1,000 crore or more, or a net profit of ₹5 crore or more—CSR obligations include allocating at least 2% of their average net profits over the past three years toward approved social initiatives. However, only specific organizations, including registered NGOs, trusts, societies, and Section 8 companies, qualify to receive these funds.

To ensure transparency and accountability, recipient organizations must comply with various regulations, such as registration with the Ministry of Corporate Affairs (MCA) by filing Form CSR-1 and adhering to Schedule VII of the Companies Act. This ensures that CSR funding is directed toward activities like poverty alleviation, education, healthcare, environmental conservation, and other social welfare projects.

This guide provides an in-depth understanding of CSR regulations, eligibility criteria, compliance requirements, and funding mechanisms to help companies and organizations navigate the CSR landscape effectively.

What Is Corporate Social Responsibility?

Corporate Social Responsibility (CSR) in India has gained significant momentum after it was mandated under the Companies Act, 2013. As a key factor for sustainable development and social good, CSR offers the opportunity for corporate entities to impact communities in which they are doing business positively.

Eligibility Criteria For Companies

Section 135 of the Companies Act, 2013 provides for the following eligibility criteria for companies:

1. Net worth of Rs. 500 crore or more: Companies with a net worth of Rs. 500 crore or more are expected to engage in CSR activities. The significant net worth indicates that such companies have the necessary wherewithal and stability to sustain long-term social initiatives without harming their financial health.
2. Annual turnover of Rs. 1,000 crore or more: Another important criterion is having an annual turnover of Rs. 1,000 crore or more. This criterion will ensure that companies with significant business and revenue-generation activities make CSR contributions. Their contribution towards CSR leads to addressing the needs of the larger society.
3. Net profit of Rs. 5 crore or more: Companies earning net profit of Rs. 5 crore or above are directed to undertake CSR. This emphasis on profitable firms having a social commitment to serve and contribute towards the welfare of communities is reinforced.

Eligibility Criteria For Recipients

CSR funds can be applied to the following types of organizations and entities:

1. NGOs, trusts, religious trusts, societies, and Section 8 companies: Only NGOs, registered trusts, religious trusts, societies, and Section 8 Companies are eligible for CSR funds, as these are the only non-profit entities. The typical activity of such organizations is in social, environmental, and developmental sectors that support the goals of CSR.
2. Registration with the Ministry of Corporate Affairs (MCA) by filing Form CSR-1: In order to bring in transparency and accountability, eligible recipient organizations have to register with the Ministry of Corporate Affairs by filing Form CSR-1. Registration is essential in order to maintain a database of eligible entities and to monitor their activities.
3. Compliance with Schedule VII of the Companies Act, 2013: The recipient organizations must conform to Schedule VII of the Companies Act, 2013 that contains the list of activities eligible for CSR spending. Such activities involve hunger-free initiatives, education development, environmental stewardship, among others.
4. Specific conditions for eligibility: Organizations should be formed solely for CSR activities or for purposes directly related to Schedule VII activities. This condition ensures that the recipient entities are dedicated to social welfare and are not engaged in profit-making activities.

Regulations And Guidelines

There are the following regulations:

Role Of The CSR Committee In Formulating And Recommending CSR Policies

CSR Committees are very important in forming and guiding a company's CSR initiatives. The following are the key responsibilities of the committee:

1. Formulating CSR policies: The committee shall formulate a comprehensive CSR policy for the company. Such a policy should detail the approach of the company toward social responsibility, and it should be in accordance with the activities listed in Schedule VII of the Act.
2. Recommending CSR activities: The committee shall recommend specific CSR activities and projects to be undertaken by the company. Such recommendations shall be based on the CSR policy of the company and the identified needs of the community.
3. Allocating CSR budget: The committee determines the CSR budget, deciding how much the company should spend on CSR activities, which, under the new law, has to be at least 2% of the average net profits of the last three financial years.

Annual Action Plan And Monitoring Of CSR Activities

An annual action plan includes the following:

1. Project selection: Selecting the projects suitable for the firm's CSR policy, as well as those projected in Schedule VII.
2. Budgetary allocation: Allocating the necessary funds for the chosen projects, ensuring that the total expenditure meets the statutory requirement.
3. Implementation schedule: This includes specifying a schedule of implementation of every project, its critical milestones, and deadlines.
4. Monitoring mechanisms: It lays down mechanisms through which the activity of CSR progress is monitored, such as installing regular review meetings, field visits, and appointing third-party evaluators if that is required.

Disclosure Requirements In The Board’s Report

The main disclosure requirements are:

1. CSR policy: Overview of the company CSR policy with focal areas and targets.
2. CSR Committee composition: Composition of the CSR Committee, with details of its members' names.
3. CSR expenditure: This would include the total CSR expenditure incurred during the financial year with a project-wise and sector-wise break-up.
4. Implementation status: Report on the status of CSR projects and activities, highlighting the achievements and impact.
5. Reasons for non-compliance: In case the company does not expend the amount necessary on CSR activities, the Board's report must provide a rationale for the shortfall and the corrective measures taken.

Prohibitions On Certain Activities

To maintain the integrity of CSR, key prohibitions include:

1. Normal business operations: Those activities that are considered part of normal business operations of the company cannot be classified as CSR.
2. Activities outside India: CSR activities are to be conducted within India, except for the training of Indian sports personnel representing any state or union territory at national or international levels.
3. Employee benefits: The CSR funds can not be applied for activities solely for the employees of the organization or their dependents.
4. Political contributions: Contributions to political parties or activities that could be considered funding into politics is not CSR.

Key Requirements For CSR Funding

To achieve the right usage of CSR funds, the Companies Act, 2013, makes some specific provisions related to funding for CSR:

• Collaboration with reputed institutions or organizations: It is encouraged to collaborate with reputed institutions or organizations by companies for their research and development activities.
• Specific funds: Companies can donate to specific funds such as the Prime Minister's National Relief Fund, Swachh Bharat Kosh, and Clean Ganga Fund. These funds cater to the core pressing national issues.
• Ensuring transparency and accountability: There has to be complete transparency and accountability in CSR practices. Companies should ensure that funds allocated for CSR are used precisely for the objectives and that outcomes are measurable.

Conclusion

CSR plays a pivotal role in fostering corporate accountability and social impact in India. With strict regulations and well-defined eligibility criteria, CSR funding is directed toward non-profit organizations, including registered NGOs, trusts, societies, and Section 8 companies. Compliance with Schedule VII of the Companies Act, 2013, and mandatory registration with the Ministry of Corporate Affairs (MCA) ensures that CSR funds are utilized effectively for sustainable development initiatives.

For businesses, understanding eligibility for receiving CSR funds in India is crucial to ensuring their contributions align with legal requirements and social objectives. Likewise, recipient organizations must adhere to compliance norms to access and utilize CSR funds for impactful social programs. By following these guidelines, both corporates and non-profits can work together to drive meaningful change, addressing key societal challenges and promoting long-term development.

FAQs On Corporate Social Responsibility (CSR)

Here are some frequently asked questions to help you better understand Corporate Social Responsibility:

Q1. What is Corporate Social Responsibility (CSR)?

CSR refers to a company's commitment to conduct business ethically, contribute to economic development, and improve the quality of life for its workforce, local communities, and society at large.

Q2. Which companies are required to undertake CSR in India?

Companies with (a) a net worth of ₹500 crore or more, (b) an annual turnover of ₹1,000 crore or more, or (c) a net profit of ₹5 crore or more are mandated under Section 135 of the Companies Act, 2013, to undertake CSR activities.

Q3. How much must companies spend on CSR activities?

Eligible companies are required to spend at least 2% of their average net profits from the last three financial years on CSR activities.

Q4. What are some permissible CSR activities?

CSR funds can be utilized for activities such as eradicating hunger and poverty, promoting education, ensuring environmental sustainability, empowering women, supporting skill development, and contributing to national relief funds like the Prime Minister’s National Relief Fund.

Q5.Can CSR funds be used for activities outside India?

Generally, CSR activities must be conducted within India. However, an exception is made for training Indian sports personnel representing the nation at national or international levels.

References

• https://planning.mizoram.gov.in/uploads/attachments/2024/09/91c151e0dfe1b30feec2e43c40568f1b/brief-notes-on-csr.pdf
• https://accountingforngos.org/public/storage/blogs/pdf/180521053112-FMSF_Vol8.pdf