With reference to the Corporate Social Responsibility (CSR), which of the statements is/are correct ? 1. Companies Act 2014, introduces mandatory CSR. 2. 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 :
- (a)1 Only
- (b)2 Only
- (c)Both 1 and 2
- (d)Neither 1 nor 2
Correct — D, Neither 1 nor 2. Statement 1 is wrong on the statute: there is no Companies Act of 2014. Mandatory corporate social responsibility was created by Section 135 of the Companies Act, 2013; what belongs to 2014 are the Companies (Corporate Social Responsibility Policy) Rules, 2014, and the coming into force of Section 135 with effect from 1 April 2014 — which is exactly where the tempting '2014' comes from. Statement 2 is wrong on the number: Section 135(5) requires a covered company to spend at least two per cent of the average net profits of the three immediately preceding financial years, not one per cent of its annual net profit. Both the year and the percentage are misstated, so neither statement stands and the answer is (d).
- (a)1 Only — This accepts 'Companies Act 2014' as the source of mandatory CSR. The enabling law is the Companies Act, 2013, Section 135; 2014 is the year of the CSR Policy Rules and of the section's commencement, not of the Act.
- (b)2 Only — This accepts the one per cent figure. The statutory floor is two per cent, and it is computed on the average net profits of the three immediately preceding financial years rather than on a single year's net profit.
- (c)Both 1 and 2 — Both statements carry an error — the wrong Act year in the first and the wrong spending threshold in the second — so they cannot both be correct.
Section 135 of the Companies Act, 2013 made India one of the first countries to put corporate social responsibility spending on a statutory footing rather than leaving it to voluntary codes. A company is covered if, in the immediately preceding financial year, it had net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more. Such a company must constitute a CSR Committee of the Board and spend at least two per cent of the average net profits of the three immediately preceding financial years on activities drawn from Schedule VII — which lists items such as eradicating hunger and poverty, promoting education, gender equality, environmental sustainability, protection of national heritage, and contributions to notified government funds. The detailed machinery — what counts as CSR, what does not, and how it is reported — sits in the Companies (CSR Policy) Rules, 2014.
Statement-based questions on CSR are almost always won or lost on two numbers, the Act year and the percentage, so learn them as a pair: 2013 and two per cent. The examiner's favourite trick is to swap in 2014, because the Rules and the commencement date really are from 2014, and to swap two per cent for one per cent, because a smaller number sounds plausible for a mandatory charge on profits. A third detail worth carrying is the base: it is the average of three preceding years' net profits, which smooths out a single bad or bumper year, not the current year's profit as statement 2 implies.
- Mandatory CSR comes from Section 135 of the Companies Act, 2013; the section and the Companies (CSR Policy) Rules took effect from 1 April 2014
- Threshold: net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more in the immediately preceding financial year
- Mandated spend: at least 2 per cent of the average net profits of the three immediately preceding financial years
- Permissible CSR activities are listed in Schedule VII of the Companies Act, 2013; a Board-level CSR Committee oversees the policy
- A later amendment, in force from 2021, requires unspent CSR money for an ongoing project to be moved to an 'Unspent CSR Account' and used within three financial years, and other unspent amounts to be transferred to a fund specified in Schedule VII
Both statements misstate the law — hence answer (d), neither 1 nor 2.
- Reading '2014' as the Act year — the Rules are from 2014, the Act is from 2013
- Quoting one per cent, or applying two per cent to a single year's profit instead of the three-year average
- Assuming CSR is optional; for covered companies the spend is mandatory, and unspent amounts must now be parked or transferred rather than simply explained away
UPPSC asks two-statement checks on the Act year and the percentage, while UPSC goes one level deeper into the Rules — what qualifies as CSR expenditure, whether a minimum is prescribed, and how unspent amounts must be treated.
With reference to Corporate Social Responsibility (CSR) rules in India, consider the following statements: 1. CSR rules specify that expenditures that benefit the company directly or its employees will not be considered as CSR activities. 2. CSR rules do not specify minimum spending on CSR activities. Which of the statements given above is/are correct?
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2
- (d) Neither 1 nor 2
Answer(a) 1 only
The same statutory scheme, tested five years later: UPSC's second statement is false for exactly the reason UPPSC's second statement is false — a minimum spend of two per cent of the three-year average net profit is prescribed under Section 135.
- practice — not a real PYQ
Under Section 135 of the Companies Act, 2013, a company must comply with CSR obligations if in the immediately preceding financial year it had:
- (a)Net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more
- (b)Net worth of Rs 100 crore or more, or turnover of Rs 500 crore or more, or net profit of Rs 1 crore or more
- (c)Turnover of Rs 5,000 crore or more only
- (d)Net profit of Rs 50 crore or more only
Answer(a) any one of the three thresholds — net worth Rs 500 crore, turnover Rs 1,000 crore or net profit Rs 5 crore — brings a company within Section 135.
- practice — not a real PYQ
The list of activities that may be included by companies in their CSR policy is given in which Schedule of the Companies Act, 2013?
- (a)Schedule V
- (b)Schedule VI
- (c)Schedule VII
- (d)Schedule VIII
Answer(c) Schedule VII — it covers hunger and poverty eradication, education, gender equality, environmental sustainability, heritage protection and notified funds, among others.