The Companies Act, 2013 (2013 Act) lays down a framework for all companies meeting the prescribed criteria to contribute two per cent of their profits for a CSR purpose.
The CSR Rules (Rules) state that every company including its holding or subsidiary, as well as foreign companies having a project office/branch in India, meeting certain criteria (i.e. equaling or exceeding net worth of INR500 crore, or net profit of INR5 crore, or turnover of INR1,000 crore) during any financial year, is required to comply with the CSR provisions.
Activities which may be considered as eligible CSR spend are provided in the Schedule VII to the 2013 Act. The Ministry of Corporate Affairs (MCA) has also clarified that CSR activities enumerated in the Schedule VII to the 2013 Act are broad-based and are intended to cover a wide range of activities. Thus, these prescribed activities should be interpreted liberally to capture their essence.
In order to provide guidance on certain accounting issues relating to the expenditure on CSR activities, the Institute of Chartered Accountants of India (ICAI) on 15 May 2015 issued a guidance note on accounting for expenditure on CSR activities (guidance note).
It provides guidance on the recognition, measurement, presentation and disclosure of expenditure on activities relating to CSR activities. It does not deal with the identification of activities that constitute CSR activities.
The ICAI had earlier issued the ‘Frequently Asked Questions on the provisions of the CSR under Section 135 of the Companies Act, 2013 and Rules thereon’ (FAQs) as an interim measure. On issuance of this guidance note, the FAQs related to areas covered by the guidance note stand withdrawn.
This issue of First Notes summarises the key aspects of the guidance note issued by the ICAI. For the text of the guidance note issued by the ICAI, please click here.
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