Previous Year Question
With reference to the Corporate Social Responsibility (CSR), which of the statements is/are correct?
Companies Act 2014, introduces mandatory CSR.
Companies covered under this will have to spend atleast one percent of their annual net-profit in the activities under CSR.
Select the correct answer using the codes given below:
1 only
2 only
Both 1 and 2
Neither 1 nor 2
Correct Answer: D
Detailed Solution
Corporate Social Responsibility (CSR) refers to the contribution of companies towards social, economic, and environmental development alongside their business operations. In India, statutory provisions relating to CSR were introduced under Section 135 of the Companies Act, 2013. These provisions came into effect on 1 April 2014.
Statement 1 is incorrect. CSR was given statutory recognition under the Companies Act, 2013, not the Companies Act, 2014. Section 135 requires companies meeting prescribed financial criteria to comply with CSR provisions. In the context of 2019, these criteria included a net worth of at least ₹500 crore, annual turnover of ₹1,000 crore, or net profit of ₹5 crore.
Statement 2 is incorrect. According to Section 135(5), eligible companies are required to spend at least 2% of their average net profits during the three immediately preceding financial years on CSR activities, not 1% of their annual net profit. For example, if a company's average net profit over the preceding three years is ₹100 crore, its prescribed CSR expenditure would be ₹2 crore.
CSR activities are specified in Schedule VII of the Act. These include education, healthcare, poverty eradication, environmental protection, women’s empowerment, and rural development. Under the provisions applicable in 2019, if a company failed to spend the prescribed CSR amount, it was required to explain the reasons in its Board's Report.