Today we will talk about Corporate Social Responsibility(CSR) Expenses.
A company cannot run its business solely for profit purpose, It has to take care of the society which provides the company with the resources to run the business.
A company cannot run its business solely for profit purpose, It has to take care of the society which provides the company with the resources to run the business.
CSR ensures that company returns a certain portion of their profits to the society by doing good for the people.
As per the Companies Act, 2013, A Company having Net Worth of Rs. 500 crores or Turnover of Rs. 1000 crores or Net Profit of Rs. 5 crores in any financial year shall form a committee to take care of initiatives for CSR Activities.
This committee should ensure that company spends at least 2% of average net profits of three immediately preceding financial years.
Too Confusing?
Too Confusing?
Here's an example
A Limited has a turnover of Rs 1200 Cr in FY2019-20 (This makes it eligible for CSR activities). Now you have to take the average net profit of FY2016-17, FY2017-18 & FY2018-19(three immediate preceding financial years) for finding the amount to be spent on CSR
A Limited has a turnover of Rs 1200 Cr in FY2019-20 (This makes it eligible for CSR activities). Now you have to take the average net profit of FY2016-17, FY2017-18 & FY2018-19(three immediate preceding financial years) for finding the amount to be spent on CSR
Assume the profits were Rs. 25 crores, Rs. 40 crores & Rs. 55 crores respectively. The average comes to Rs. 40 crores (Rs. 120 crores/3). The company has to spend 2% of average i.e. Rs. 0.8 Crores or Rs. 80 Lakhs in CSR Expenses for FY 2019-20
The company has to compulsorily spend this money or else they have to provide a reason for not spending the amount in the CSR Report.
Few Pointers:
- One of the important way to judge the quality of management is to check whether they are regularly spending this amount or not, Good companies do the expense regularly and do not have major unspent amount. Some of them do more than the actually required amount.
- One of the important way to judge the quality of management is to check whether they are regularly spending this amount or not, Good companies do the expense regularly and do not have major unspent amount. Some of them do more than the actually required amount.
- CSR expense though being an expense item is not deductible under Income Tax Provisions. This demotivates the companies to do more than the required amount as they do not get tax benefits for this expense.
- Company accumulating and avoiding the CSR expenses for many years by giving any reasons in CSR Report should raise a red flag.
End of thread.
End of thread.
